Open interest on the Nifty futures in the Singapore Exchange (SGX) has surged. These have risen to more than double the total OI in the domestic Nifty futures markets, traded on the National Stock Exchange (NSE).

The Nifty is the NSE’s benchmark index. Open interest is the number of derivative contracts yet to be settled. The total value of the OI positions of Nifty futures on the SGX stood at Rs 31,572 crore compared to the Rs 12,347 crore on the NSE, according to analysis by Business Standard.

SGX Nifty futures volumes has risen 27 per cent from an open interest of Rs 24,905 crore on January 1. Those at home have fallen in this period.

Increasing confidence about growth prospects of the Indian equity market among foreign investors has led to the resurgence of interest for the Nifty index futures in the Singapore market, said participants. The rising gap is being fuelled by these new investors, who have preferred to trade on the SGX rather than in India, according to experts.

Since January, Indian markets have risen 20 per cent, as investors pumped money into the equity markets ahead of the May elections. Since May 16, the election outcome day, the OI in the SGX Nifty has jumped 25 per cent. However, as noted earlier, in contrast to the SGX market, “The open interest in the Indian markets has decreased, with traders unwinding positions in India. But those who have unwound positions here have not necessarily moved out and started investing in the SGX market”, said Amit Gupta, head of derivatives, ICICI Direct.

OI in Nifty futures has fallen about eight per cent from  Rs 13,406 crore on January 1. Since May 16, it has fallen by about 30 per cent. Traders of Nifty futures in the Singapore market are mainly foreign investors who prefer to trade in the dollar-denominated SGX Nifty futures than the rupee-denominated NSE nifty futures. “SGX Nifty futures are preferred by foreign traders on the back of ease of trading, easier reporting standards and its being dollar-denominated, which reduces the currency volatility. Domestically, the open interest in NSE Nifty futures has declined and leverage bets have increased via stock futures,” said Yogesh Radke, head of quantitative research, Edelweiss Securities.

Apart from the dollar-denomination advantage, the tax paid for trading in the Singapore market is almost a fourth of that in the Indian market, as no statutory levies are applicable there.

At present, SGX Nifty futures contribute to 70 per cent of the total value of the contracts but is responsible for generating only 25 per cent of the volumes, says one expert. This is because of the difference between the value of each contract in the domestic Nifty futures and the SGX Nifty futures.

At $ 2 a contract and assuming Rs 60 to a dollar, the total value of a contract in the SGX Nifty amounts to Rs 120 multiplied by the Nifty value for the day. In the domestic market, the value of a contract is Rs 50 multiplied by the Nifty value for the day. By this calculation alone, the SGX Nifty generates far more value on a low-volume base as compared to the Indian market.  

Further, analysts said concerns over the proposed General Anti-Avoidance Rules (for tax) could see more volumes shifting to the SGX market.

GAAR could give powers to the Indian tax authorities to look into instances of evasion by entities routing profits through tax havens such as Mauritius. This could mean higher taxes for investors investing in the domestic Nifty futures through such havens.