SGX NIFTY – Functioning, Purpose and Uses

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Ever wondered how analysts predict the movement and volatility of the market indices even before it opens? An obvious answer would be momentum, investor sentiment, significant events, and other happenings globally after the close of the previous day, that one would believe to influence the share prices the next day. While being partly correct, this is not exactly the case. No, it’s not a thesis, nor does it have anything to do with complex calculations, but a simple index that anyone can use as an indicator to foresee the days’ opening index movements. Well here it is, SGX Nifty, the derivative of Nifty Index that trades on the Singapore Stock Exchange. The most remarkable fact is that, it actually works.

WHAT AND WHY?

Nifty futures, or SGX Nifty, is an abbreviation for Singapore Stock Exchange that officially trades in Singaporean markets As India and Singapore are in the same continent, and due to global effect of share trading, the SGX Nifty is indirectly related to the Sensex and Nifty. After the globalization of share trading, wherein countries are able to trade with one another, any change in the economic performance of one country has impact on the stock prices of another country. SGX Nifty thus moves with respect to the Indian Nifty.

Investors who are unable to gain access to the Indian markets (due to compliances, increased expenses, etc), but believe in and are willing to invest in India’s growth story, do so through the SGX Nifty in Singapore. Some might probably invest to just diversify their portfolio or obtain a part exposure in the world’s fastest growing economy.

TIMINGS

Nifty and Sensex in the Indian markets trade from 9:15 am to 3:30 pm on all weekdays (except declared holidays). However, SGX Nifty in Singapore opens at 6:30 am and closes at 11:30 pm Indian Standard Time, trading for as long as 16 hours, on the same days. This is why it is said that SGX Nifty acts as the initial direction for the Indian stock markets before the pre-open session in India begins at 9:00 am, and how analysts predict opening movements.

HOW IT WORKS AND HOW TO USE IT?

It is true that SGX Nifty also moves according to the momentum, investor sentiment, significant events, and other global happenings, but the point here is that it gives a direction as to how the Indian markets will react to the above factors. Net buyers (indicating bullish) in SGX Nifty right when it opens will drive the index upwards, and Nifty in Indian markets will sway to positive openings, while the contrary happens if there are net sellers (indicating bearish) on SGX at opening. Index movements later in the day are not absolutely inter-dependent but are positively correlated, barring cases when market direction is unclear. And as a matter of fact, subsequent movements do not require predictions on the basis of SGX. But why?  How does it exactly affect the Indian markets?

While it is often seen that a rise in SGX Nifty also corresponds with a rise in the NSE, this is largely based on the fact that positive world news affects all stock exchanges similarly. The SGX Nifty takes cues from the Indian Nifty, and since the Indian Nifty also take cues from domestic factors, global economic factors and geopolitical news being reported across the world, so in reality, SGX Nifty has little to no effect on how the NSE performs during the day. Therefore, traders may use this as a signal to get a heads up on the opening market movements and plan and place their trades accordingly. However, this must not be used in isolation for taking any sort of investment decisions.

SGX Nifty gives the initial direction for the Indian market

THE SGX NIFTY CONTROVERSY

It began on 9 February’18, when Indian Exchanges announced the termination of its 16-year-old mutually beneficial licensing deal with SGX, to end Nifty’s trading on the Singapore Exchange from August. This was a decision in the light of Indian bourses losing trades to overseas rivals. It was also endorsed by the Indian government, which was keen to draw investor interest to the GIFT City (Gujarat International Finance Tec-City). This had its own pros and cons for domestic exchanges, but no benefits as such for SGX. In fact, SGX would take a revenue hit as the exchange had a 52% market share in Nifty futures trading. It would also lose some clients who traded Nifty on its platform. So following this announcement, SGX decided to launch its own index based on the Indian market. In the month of May, NSE dragged SGX to court over breach of intellectual property rights, and the battle began.

A court-appointed arbitrator allowed the Singapore Exchange to continue the listing and trading of SGX Nifty contracts beyond the deadline of August. As part of the arbitration proceedings, the NSE and the SGX had been directed by the arbitrator to facilitate the continued listing of SGX Nifty products for at least two successive contract month maturations beyond the arbitration’s completion date. Also, the arbitrator asked SGX to refrain from offering its proposed new India equity derivative products until the final decision. Arbitration proceedings are continuing and the hearings on evidence are expected to commence in early 2019.