Know how Indian investors can now trade in US stocks

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Residents of India can now invest in US stocks through NSE International Exchange (NSE IFSC), an NSE subsidiary, which will begin trading the top 50 American stocks on March 3 at Gift City Gujarat, an international financial services centre where banks, stock exchanges, and financial services firms conduct their global operations. According to a top NSE official, for openers, eight equities, including Google, Facebook, Netflix, and Apple, have been listed on the platform since March 3, with 42 more to be added this week.

The RBI’s liberalized remittance scheme (LRS) allows resident Indians to send up to $250,000 per year to acquire houses, stocks, paintings, medical treatment, private excursions, and other defined purposes, with prohibited derivatives trading.

IFSC Banking Units have been established by 15 state-owned and private banks (IBUs). A person can invest by transferring funds from her bank account to her IBU broker’s account. Around 15 major brokerage firms have set up shop in Gift City and are members of the NSE IFSC.

Know the basics

The NSE IFSC (National Stock Exchange of India Limited) was founded on November 29, 2016, and is a wholly-owned subsidiary of the National Stock Exchange of India Limited (NSE). Stock exchanges in GIFT City can offer securities trading in any currency other than the Indian rupee. As a result, the NSE IFSC, which began trading on June 5, 2017, provides USD denominated trading in various items.

Index derivatives, stock derivatives, currency derivatives, commodity derivatives, and debt securities are among the instruments traded at the NSE IFSC.

Non–Sponsored Receipts

The shares will be held in IFSC depository receipts, as the Exchange plans to enable fractionalized trading, similar to an ADR or GDR of an Indian stock traded in New York or London. According to a broker who requested anonymity, the price of a receipt would be in the $5-15 area.

At the top end of the range, Netflix shares worth roughly $360 will be 24 times cheaper. A share in Apple would be 11 times more affordable in the same way. The receipts will be digitally stored in the IFSC depository and accessed by Depository participants, the brokers with whom the client would trade.

Benefits

It’s all about accessibility. Investing in US stocks is a time-consuming and expensive procedure at the moment. However, it will be much easier and more economical now. “This opens up a new investment possibility for Indian investors, with a straightforward investment process and low prices. You will be able to trade in fractional amount value compared to the underlying shares traded on US exchanges. Investors will be able to store the depository receipts in their GIFT City Demat accounts and receive corporate action benefits on the underlying shares,’ said Likhita Chepa, Senior Research Analyst at Capital Via Global Research.

Making a receipt

The receipt is created by HDFC Bank, the Exchange’s appointed custodian with an IBU. The shares are credited to HDFC Bank’s foreign unit by the international market maker, which the Exchange also sets. The bank, in turn, provides unsponsored receipts in Exchange for the credited shares.

At the NSE IFSC, the market maker sells these at a lower price. It offers both buys and sells quotes while profiting from the bid-ask spread. The receipts are accepted and sold on behalf of the client by her IFSC broker. As a result, the market maker supplies the required liquidity.

Who is eligible to invest?

Persons residing outside India, non-resident Indians, and individuals living in India eligible under FEMA may invest monies overseas to the degree permitted by the Reserve Bank of India’s Liberalized Remittance Scheme. However, residents of the United States and Canada are not allowed to invest through this instrument.

What is the best way to invest?

Indian residents will need to open a Demat account with the IFSC. Investors will be able to hold the depository receipts in their GIFT City Demat accounts and will be eligible for corporate action benefits on the underlying stock. The investment can be made within the Reserve Bank of India’s (RBI) Liberalized Remittance Scheme (LRS) restrictions, which means it must be limited to $250,000 per year ( Rs 1.9 cr).

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