PremiumSoon, you will be able to buy stocks of select US companies through the National Stock Exchange’s (NSE’s) International Financial Services Centre (IFSC) platform in Gujarat’s GIFT City. On Monday, NSE said this will make US stocks affordable for Indian retail investors.
Soon, you will be able to buy stocks of select US companies through the National Stock Exchange’s (NSE’s) International Financial Services Centre (IFSC) platform in Gujarat’s GIFT City. On Monday, NSE said this will make US stocks affordable for Indian retail investors.
Which stocks will be available?
You will be able to invest in unsponsored depositary receipts (DRs) of US stocks through the NSE subsidiary. This means market-makers will buy stocks in the US and deposit them with a custodian bank. They will then issue DRs against these shares. To begin with, NSE is aiming to list DRs of 50 US stocks, including popular names like Alphabet Inc., Facebook Inc. and Tesla Inc. BSE-owned India International Exchange (India-INX) also offers international stocks to Indian investors through IFSC. BSE acts as an introducing broker for international brokers. The stocks bought via India-INX are held in the US or other relevant jurisdiction.
How can you invest in the stocks?
You can remit money to GIFT City under the Liberalized Remittance Scheme (LRS) of the Reserve Bank of India (RBI). LRS has a cap of $250,000 per year. The stocks will be held in your demat account in GIFT City. You will have to disclose all holdings in GIFT City as if they were foreign assets in your income tax return. Short-term capital gains in such stocks are taxed at slab rate, and long-term capital gains at 20% along with the benefit of indexation—on par with debt mutual funds in India. The holding period for long-term capital gains for foreign stocks is two years and foreign exchange-traded funds is three years.
What recourse would you have for complaints?
The Security and Exchange Board of India is the authority for all investor complaints. However, in GIFT City, the IFSC Authority is the sole regulator. If you have a complaint, you will, in the first instance, have recourse to the grievance redressal mechanism of the exchange (the NSE subsidiary in GIFT City). If it cannot resolve your complaint, you can move the IFSC Authority.
Can retail investors buy the US stocks?
NSE is trying to make GIFT City accessible to retail investors. For instance, NSE will enable fractional investing, which allows small investors to buy stocks that would otherwise be unaffordable. For instance, Tesla trades at around $700, but you may be able to buy a fraction of this share for $3-5. Brokers are also likely to set up subsidiaries in GIFT City, allowing a seamless transition for their customers. However, clients may have to provide some additional forms for risk profiling, and a consent for foreign stocks trading.
Are there any roadblocks?
Under current RBI rules, forex accounts in GIFT City are non-interest bearing. Any sum not invested in 15 days has to be sent back to the domestic account of the investor. Even keeping idle money with brokers in GIFT City may be barred. Hence, investors will face a lot of forex costs in remitting money if they do not invest it right away. According to a senior professional close to the matter, the IFSC Authority is in talks with RBI to modify this rule. Investors can also face a slightly higher bid-ask spread.
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