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Understanding The Proposal Of NSE & BSE To Facilitate International Investing Directly

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Indian investors will soon be able to explore opportunities to add foreign stocks like Apple, Bumble, Amazon, etc. to their portfolio amid the domestic bourses setting up an international exchange to allow direct trading in foreign stocks. Amid the boom in the investing space and Indian markets being among the top in the world in the last 12-16 months, the NSE (National Stock Exchange) and BSE (Bombay Stock Exchange) have recently announced that investors will soon be able to trade in select foreign stocks through the IFSC (International Financial Services Centre) at GIFT (Gujarat International Finance Tec-City).

India INX – the international arm of BSE, and NSE IFSC – a wholly-owned subsidiary of the National Stock Exchange are international exchanges based in the IFSC at GIFT.

Currently, few Indian brokers have tied up with international brokers to facilitate trading in foreign-based stocks. Apart from this, investors till now have followed the Mutual Fund path to engage in foreign investing. Around 12 funds at present are active in US stocks directly or via the fund of funds route, as per a media report. Motilal Oswal Nasdaq 100 ETF (Exchange Traded Fund), Motilal Oswal S&P 500 Index Fund, and others are mainly engaged in the technology space in the foreign markets and stocks like Amazon, Apple, and Facebook top the list of holdings. 

The Plan

The country is now opening doors to diversify the investment culture in the country by diversifying portfolios via investment in foreign stocks will attract more participation in the markets, experts said. Enabling this will allow new investors to choose between various options rather than restricting themselves to the existing instruments.

India holds tremendous potential with over 6.5 crore Demat accounts and we foresee a significant surge among these towards global investing, said, experts. Stockal – a global investment platform that helps investors from India and the Middle East, has alone done about Rs 650 crore worth of new remittances from India to the US for investing in stocks in the last 12 months, as per a media report.

Investors will now become growth-oriented and capture opportunities that otherwise may not be available in domestic markets to diversify geographic and currency risks, explained experts.

Will an investor trade at the same price?

We spoke to a couple of retail investors to understand their concerns on this – Sunil Shah and Smit Shah are two siblings from Gujarat and are engaged in investing money in the markets. Both Sunil and Manish have always preferred to keep their portfolio diversified in various areas of the market instead of piping all of it into the equities. However, both siblings are currently in a dilemma about will they pay the same price of the foreign stocks they are dealing in?

Their concern is valid, and the exchanges have clarified that NSE IFSC and India INX will allow their own US shares via Fractional ownership and there could be depository receipts issued by the IFSC exchanges between $3 and $5 (tentative) to facilitate affordable buying for Indian investors.

However, before one starts investing, they will have to buy dollars from rupees to maintain the Reserve Bank of India’s Liberalized Remittance Scheme (LRS). Under the LRS, any individual is allowed to remit up to 2.5 lakh US dollars (USD 2,50,000) in each financial year.

What change will this bring? Let us understand

Several brokers have been offering this facility via tie-ups with international brokers and the direct offering of the same would give investors a much broader platform to diversify the portfolio and will create more investment opportunities. As per a media report, currently, almost 95 per cent of the Indian investment is into Indian stocks, however, experts feel that with the move being executed in the coming months, it will facilitate more investors to expand their boundaries and we can see a good response to the same.

In a conversation with BW Businessworld, Aashish Somaiyaa, CEO, White Oak Capital, said, “International investing is important to capture varied opportunities and to enable diversification; so, as many options provided are welcome and it is a praiseworthy initiative.”

However, he added that understanding the risks of investing in foreign markets will be a challenge for investors across the country.

“Given that equity investing in itself is not well understood in India in general, understanding the risks of investing in global markets is going to be a challenge,” said Somaiyaa.