Local investors who leave no stone unturned to rake in a moolah from Indian stock markets are naturally inclined to explore overseas investments to be able to get exposure to high value stocks of Amazon, Facebook, Alphabet and Tesla, among others.
Now, investors have two options to get exposure to American stocks. They can invest in global securities via NSE-IFSC, or through India INX Global Access (India INX GA). The latter is a special purpose vehicle set up by BSE’s India International Exchange.
NSE has created unsecured depository receipts (DRs) in GIFT (Gujarat International Finance Tec) City, while BSE-owned India INX is simply acting as an intermediary platform. Investors in India INX can transfer money straight from India to the US or other foreign markets without touching the IFSC itself.
One of the key differences between the two routes is that NSE IFSC, as of now, only permits to invest in depository receipts of eight stocks. However, the number is likely to increase to 50 soon. An unsecured depository receipt is created by a market maker who buys the underlying shares in the US and issues the receipt against them.
India INX, on the other hand, has partnered with US-based interactive brokers to enable investors to invest their money in a large number of stocks, exchange-traded funds (ETFs) and managed portfolios across the US, Asia Pacific and Europe.
It is interesting to note that several domestic brokers have already enabled Indian investors through collaboration with global brokers.
GIFT City: Two alternatives to invest in global stocks
| BSE-India INX Global Access | NSE- IFSC |
| One can buy actual stocks, ETFs and bonds | Investors are issued unsecured depository receipts (DRs) |
| Wide gamut of options available with access to liquidity of US market | Trading happens in IFSC and not overseas |
| Key disadvantage is it involves risk with regards to international broker | One key disadvantage is that there are limited options of investment |
Depository receipts by NSE-IFSC
In the NSE-IFSC route, shares bought in global markets are deposited with the HDFC Bank (custodian), which is meant to issue depository receipts (DRs) against them. These receipts will start trading on the exchange in GIFT-City. Once bought, DRs will be held in the investor’s name in GIFT-City.
Even division of shares can also be done by the exchange via custodian (HDFC Bank). It is important to note that trading on the NSE-IFSC platform commenced on March 3 with eight US stocks only. This will increase to 50 in the first phase.
BSE-India INX route
The BSE-India INX route, or the one offered by brokers, offers a lot more choices.
In this route, the investor’s orders are issued to the international broker who buys the shares held by the international broker in its own name. It is noteworthy that shares bought via international brokers at BSE-India INX will be treated as foreign shares.
India INX has already partnered with 75 brokers to allow access to their customers. This is quite similar to what financial technology companies such as Stockal, Globalise and Vested Finance do.
Experts advise retail investors who are new to international investing to first opt for diversified portfolios, such as ETFs or index funds.
As of now, the BSE-international broker route offers exchange traded funds (ETFs).
So, those investors who want to buy individual stocks in American stock markets in the safest way possible can choose depository receipts issues by NSE-IFSC, whereas those who prefer to buy ETFs or index funds via international brokers can choose BSE-India INX.
Meanwhile, the Budget 2022 announced several schemes for GIFT city. Union Finance Minister Nirmala Sitharaman, during her budget speech in 2022, said, “World-class foreign universities and institutions will be allowed in the GIFT City to offer courses in Financial Management, FinTech, Science, Technology, Engineering and Mathematics free from domestic regulations.”