Trading in global stocks through GIFT IFSC: A win-win proposition

International equity exposure offers a great diversification opportunity for investors. As different markets rarely move in tandem, especially over the medium to long term, underperformance in one market is usually offset by a healthier performance in another. A well-diversified portfolio with global exposure reduces volatility, provides greater stability and smoothens the wealth creation journey of Indian investors. Moreover, crossborder investments are also a means to industry diversification.

In the past few decades, Indians have progressively increased their usage of global products and services. Further, globalisation and the emergence of global value chains (GVCs) have made domestic investors more aware of global companies. Today, with the increased exposure to the internet and foreign media, one can get to know about foreign market trends in a click. With most big global corporations having operations in India, it has become furthermore relatable to domestic investors.

When investors buy foreign stocks for portfolio diversification, they are also effectively buying the currencies in which the stocks are quoted. For instance, if an investor invests in US stocks, any depreciation in the Indian rupee against the US dollar will provide additional returns to the investor, apart from any gains made by the movement of the US stocks. If the stocks underperform, gains through currency fluctuation can smooth out returns. All these factors prompted Indian investors to increasingly prefer global stocks in their portfolio.

Currently, under the Liberalised Remittance Scheme (LRS), the Reserve Bank of India (RBI) allows resident individuals to remit a maximum of $250,000 or its equivalent abroad per financial year for permitted current or capital account transactions or a combination of both.

GIFT IFSC – Offering Investment Opportunities to Domestic Investors
So far, Indians have been either investing in foreign securities through the mutual fund (MF) route or through their brokers, who in turn have tie-ups with international brokers. The MF route has certain limitations as one must take exposure to a basket of securities and cannot buy an individual stock. The second option of investing through an international broker is expensive and fraught with certain risks.

Though international investing has seen strong traction in India over the last few years, it got a new boost when the RBI expanded the LRS to the International Financial Services Centre (IFSC) at the Gujarat International Finance Tec-City (GIFT City) in February 2021. With this, for the first time, Indian retail investors were able to trade in stocks listed outside India, at GIFT IFSC.

This announcement came in line with a series of recent developments at GIFT IFSC. The introduction of LRS at GIFT IFSC will not only make it significantly easier for retail investors to invest in foreign stocks, but also provides an opportunity for portfolio diversification for domestic or foreign players and create investment opportunities for investors.

India INX GA – Opens a New Conduit for Domestic Investors
India INX Global Access IFSC Limited (India INX GA), a wholly-owned subsidiary of India INX, a stock exchange at GIFT IFSC, offers stocks from the US, Canada, the UK, Europe, Australia, and Japan, covering about 80 per cent of the investing universe. It eventually plans to provide access to over 130 exchanges across 31 countries. The India INX GA platform is set to encourage resident individuals to transact and invest in global stocks in an easy and convenient manner under the LRS route. India INX GA has also tied up with multiple banks to bring down the cost of remittance of funds under the LRS. Indeed, GIFT IFSC offers flexibility in financial transactions, lower taxes and easier regulations as compared to other Indian hubs.

Move to Elevate GIFT IFSC
Any dependence on foreign IFSCs will only undermine India’s position globally. GIFT IFSC has been launched to provide global financial products to institutions and investors in India and across the globe. Accordingly, the Indian government and the unified regulator at GIFT IFSC, the International Financial Services Centre Authority (IFSCA), are constantly striving to push the boundaries.

A vibrant GIFT IFSC can attract international traders to trade at GIFT over other platforms in Dubai, Singapore and other countries. This will boost India’s brand image and make it on a par with London, New York, Hong Kong, Singapore and Dubai. GIFT IFSC, which was established as a globally benchmarked IFSC, is positioned as India’s first dominant gateway for global capital flows in and out of the country.

GIFT IFSC – To Propel Indian Economy
India is fast emerging as a key global player in various sectors. With the country’s deepening economic linkages and interdependencies with the rest of the world and higher integration with the global value chain, a vibrant IFSC will boost the country’s economy also.

As more and more domestic investors start investing in foreign stocks, there will be an expected outflow of dollars, thereby leading to a deprecation of the rupee, which will be reversed once returns from such investments start to flow in. This is going to improve the economy as procuring dollar-denominated assets is more likely to act as a hedge rather than an exposure against any currency fluctuations.

Moreover, a vibrant IFSC will attract various financial services-related businesses. It also aids domestic companies to raise funds from overseas investors and help the Centre garner additional revenue over the long term. A thriving financial centre will lead to the development of market infrastructure institutions (MIIs) and provide a conducive environment for the existence of financial intermediaries. This, in turn, will create new employment opportunities and boost the infrastructure at the GIFT IFSC. The benefit of a vibrant market with wide participation and liquidity will spill on to other asset classes also, eventually ensuring that trading in asset classes done outside the country moves back to India.

Thus, GIFT IFSC can act as an important catalyst for economic development and thereby ensure an Aatmanirbhar Bharat.

(The author, V Balasubramaniam, is MD & CEO, India INX. Views are his own)