What is SGX Nifty? How does it affect the Indian Stock Market?

When one reads the business section of the newspaper or watches new channels on their television, it becomes inevitable to miss out on the term Nifty or the constant news that highlights how points within this platform either go up or down. 

But before explaining what Nifty is, one concept that must be remembered is that every nation or country has its own platforms where they exchange stocks. The platform where Indian stocks are exchanged will be different from the platform where Chinese stocks are exchanged. 

Keeping this point in mind, the explanation regarding what Nifty it will seem a little less complex. 

What exactly is Nifty?

Nifty is a small sample of 50 companies of the index market from different economic sectors, introduced by the National Stock Exchange (NSE - an Indian platform for stock exchange). 

This platform gives an idea to the investors on how a particular company performs in a day. Since companies are judged according to their performance in the market, Nifty lists them all based on which companies are doing better than the others, resembling a ranking system.  

To make it simple, let’s take an example of a voting system: During the time of elections, the only source the public has, to see the live telecast of votes is through the new channels on television, which constantly broadcast polls of the votes of each party and how they are performing. By just the numbers, one can guess which party is going to win the elections. But how are these numbers collected? 

This occurs through the conduction of small surveys where voters are asked to vote for a party they think has the potential to make some positive changes. After these surveys are done, and data is collected, they provide an estimation number or a hint as to which party will perform well. Almost 50% to 60% of surveys are always right, and the same analogy can be applied to nifty. 

Nifty conducts a similar survey of the top listed companies in the country according to their performance and gives a hint to investors that this company has the potential to do good even in the future. 

Now, you must have understood what the term Nifty means. But there is another term called SGX Nifty. And now before there is any further confusion, read on to differentiate between these terms. 

What is ‘SGX Nifty’?

SGX is a derivative product of Nifty futures trades (where this trade reduces the future risk of any investment by setting the predetermined price of a share beforehand) at the Singapore Stock Exchange (SGX). 

In simpler words, like a simple Nifty described above, SGX is a future trade nifty in Singapore where, regardless of the fluctuations in the prices of a share, an investor and buyer need to abide by the predetermined price of a share. 

This means as the polls help in predicting the result in an election, SGX Nifty helps predict and observe the behaviour of the Indian nifty quite well. 

Differentiating Between Indian Nifty and SGX Nifty

1. SGX Nifty is a Nifty futures trade which is a platform in the Singapore Stock Exchange and India, whereas the Indian Nifty contract trades on the NSE platform only. 
2. The contract size of SGX Nifty is different compared to the Indian Nifty. In India, we have 75 shares in every Nifty contract lot, whereas the SGX nifty does not have a contract with shares in it. For example, to put it into simpler words, in the Indian stock exchange market platform a contract (between buyers and investors) must have a minimum requirement of 75 shares whereas this requirement is not at all necessary on the SGX platform. 
3. SGX Nifty is denominated in terms of US dollars. Say, if Nifty is trading at 9000, then the contract size of SGX Nifty will be 9000*(2 USD), i.e., 18000 USD. The example of doubling the amount can be simplified in this way; Suppose you go to a local shop to buy an item, you will receive it at a lower price than if you go to a big-brand store to purchase the same item. 
4. SGX is the most active trading contract in Singapore (as this is the only platform where trading occurs for more than sixteen hours a day). This high traffic on this platform results in high volumes of customers and trading activities, and since this same activity does not occur on the national exchange platform, SGX is much more profitable and more in need for many markets. 

Who can trade in SGX Nifty?

For those investors who are not able to trade in the Indian Nifty and for those who want exposure before entering the Indian Nifty, SGX Nifty is a good alternative. 

However, Indians are not allowed to trade in SGX Nifty contracts or any other derivatives in other countries.

SGX Trading Hours and the Importance of These Trading Hours 

Indian Nifty starts at 9:15 am and operates till 3:30 pm, which means it trades for only six hours a day. According to the Indian time, SGX Nifty functions from 6:30 am to 11:00 pm, which means it trades 16 hours a day. 

Due to this long period of trading and since the time difference between the two regions is only two hours and thirty minutes, professional traders and investors find it extremely useful for their hedging requirements. That is why all investors much love SGX Nifty.

To commoners, this time gap isn’t a very notable feature; but consider this example, when in an exam one is given a choice to start the paper forty minutes before the other students, one does get an advantage in that situation and can answer questions properly. 

The same logic applies to these two markets since SGX nifty trades for a longer period. This is why it has become a learning and practising market for beginners and other newcomers, whose lessons can later be implemented on the Indian Nifty by international/ Indian traders.

How do settlements work in SGX Nifty?

The settlement is a cash settlement, and the final settlement price is the official closing price of the S&P CNX Nifty Index, rounded to the nearest two decimal places. 

This official price is derived based on the weighted average prices of the individual component stocks of the index during the last 30 minutes of trading.

How SGX Nifty Affect the Indian Market?

We know that there is a time difference between the Indian Nifty and the SGX Nifty, in which the market opens 2 hours 30 minutes before the Indian market. From there, investors keep their eyes on SGX Nifty to get an idea of how the market is going to open; investors observe the market walk (fluctuations) whether it is going up or down. From there, they get an idea of whether the Indian Nifty market will open up with positive or negative points. 

However, all the information they get is not certain because of the economic factors that persist in both countries. Economic and global factors of a country decide the behaviour of a market, and India and Singapore have a different economic structure which affects the country’s market prominently. 

No market has not been affected by the pandemic and to assume that financial markets have not been affected would be a lie. Since the shutdown of the Indian Nifty, traders and analysts only have the SGX Nifty to see the international changes (price movement changes) in the financial market. 

Due to the massive downfall of economic growth within the Indian economy, Indian Nifty has started to provide premiums and discounts on opening prices within this platform for traders to make it much easier for them to invest and trade.  

Transformation of SGX Nifty Into GIFT Nifty

As part of a cross-border collaboration, SGX Nifty stopped performing in Singapore on July 3, 2023, and was shifted to India with the brand new form of "GIFT Nifty". The total derivative contracts worth $7.5 billion were transferred to India, along with the overall trading volume and liquidity. Gujarat's International Finance Tec-City, aka GIFT City in Gandhinagar, Gujarat, became GIFT Nifty's new home after Singapore. It is a Special Economic Zone (SEZ) which is designed to attract foreign investments in India. NSE IX is the first stock exchange to be set up in GIFT City.

To get in-depth information about what the transformation from SGX Nifty to GIFT Nifty means, as well as the difference between the two, check out this article here.

Conclusion

Overall, both platforms are of equal importance as they help understand the behaviour of each other whenever the markets open. For investors, or for anyone who wants to trade or wishes to pursue a career of trading, knowing about these two platforms can be quite beneficial. 

If you have heard the phrase ‘Money never sleeps’ from the popular movie ‘Wolf of Wall Street’, you know that the rustle within those offices occurs for a reason. All employees screaming either on the phone or to a screen is not just acting. It is the actual representation of what happens on platforms like Nifty and SGX on a daily basis.

Dealing with money is a gamble and having a whole market dedicated to those who are good gamblers within the financial market is exciting and scary all at the same time. So, it will only be beneficial to know the market before you step into it. 

And what other better way to understand a market than to know the market of your region (in this case the Indian Nifty) and one of the biggest international trade platforms out there (SGX Nifty)!