Have you ever wished to buy top US stocks like Apple, Amazon and Tesla from Indian stock exchanges? Well, that wish has been granted! Investing in blue-chip US stocks is set to get much easier for Indian investors.
NSE IFSC, a fully-owned subsidiary of the National Stock Exchange (NSE) has announced that it will enable trading in the top 50 US stocks such as Apple, Amazon, Alphabet, Tesla and Microsoft.
Most of these stocks have generated phenomenal returns over the past few years. So if you feel tempted to nibble at any of these stocks, you might want to read further.
What’s new?
The NSE and BSE have announced investing in overseas stocks through their arms at NSE IFSC and India Inx respectively, which operate out of GIFT City.
You may ask why aren’t they offering foreign stocks on the domestic exchange platform? That would make life more simple! Right.
However, sadly none of the US companies are getting listed in India. Their stocks are being traded under the so-called unsponsored depository receipts programme. More on that later.
Which stocks are available to trade?
NSE IFSC has commenced trading in US stocks under the regulatory sandbox programme. This means the facility will be in a testing stage initially and is available only for a set of investors. Once the testing stage is completed, the platform will be open for all investors. Initially, NSE IFSC will allow trading in just eight stocks. These include Amazon, Tesla, Alphabet (Google), Meta Platforms (Facebook), Microsoft, Netflix, Apple and Walmart. The exchange has also issued a list of 50 US stocks in which trading will commence soon.
Okay, but what is GIFT City?
GIFT City, located at Gandhinagar, Gujarat, India’s first and only International Financial Services Centre (IFSC). From a domestic investor’s standpoint, it is akin to an offshore trading destination. Trading and settlement at GIFT City IFSC takes place in US dollars only. It is modelled on the lines of international financial centres in Singapore and Dubai. It offers a more relaxed regulatory regime and tax breaks to encourage foreign investors and non-resident Indians (NRI). So there is no securities transaction tax (STT) or stamp duty for trading done at the GIFT City.
What are the other options available at present?
Investing in overseas stocks isn’t really a novel concept. Several Indian investors already invest in foreign securities. So, how is it done currently?
At present, Indians are either investing in foreign securities through the MF route or through their brokers, who in turn have tie ups with international brokers.
So what’s the big deal about the latest move? The options currently available have certain limitations. Let’s look at what they are.
Through the MF route one has to take exposure to a basket of securities and cannot really buy an individual stock. So if you wish to buy only an Apple, that’s not possible through the mutual fund route.
The second option, i.e. investing through an international broker is costly. More importantly, there are other risks and trust issues as the shares bought under this set up are held in the name of the US broker and not credited to the individual’s demat account.
Wait! What are unsponsored depository receipts?
Amazon, Tesla and Microsoft are technically not listing their shares on the NSE IFSC platform themselves. Their shares are originally listed only on the NYSE or Nasdaq. As a result, investors will get to hold their depository receipts (DRs) and not actual shares. Also, the shares are being made available under the unsponsored depository receipts (UDR) programme. This means that the DRs are not being made available by the individual company but an international custodian owning these shares. A sponsored DR is when the company itself decides to list its securities on an overseas exchange platform. For instance, HDFC Bank, ICICI Bank and Wipro are listed in the US under a sponsored DR programme. On the other hand, UDR is when a company’s shares are traded at a foreign bourse without it choosing to do so. However, an investor doesn’t have to worry as UDRs are backed by genuine securities, which can be converted into underlying shares by the custodian.
How to go about investing at IFSC?
Sadly, without paperwork you can’t proceed. An investor, who wishes to trade at the IFSC, has to complete certain formalities such as KYC, LRS documentation and opening a demat account. NSE IFSC has put out a list of registered brokers (trading members) on its website.
As an investor, you can select any broker from the list. You then need to convert and transfer US dollars from your bank account to the broker’s bank account at GIFT City. Once your broker confirms the credit, you can start transacting.
NSE IFSC has tied up with HDFC Bank's IFSC Banking Unit at GIFT City (HDFC Bank-IBU). HDFC Bank IBU will issue the UDRs and undertake related activities such as opening the depository accounts of investors.
How much does it cost?
Cost of buying US stocks at NSE IFSC is much cheaper than investing through an international broker. However, it will be slightly more expensive and cumbersome as compared to investing in domestic stocks.
Affordable investing via fractional ownership
Do you know how much one Amazon share costs? About $2,700, that is over ₹2 lakh. Don’t even ask us how much one Berkshire Hathaway share costs. (Fish out that calculator and figure it out!)
Don’t worry! The price of US stocks traded at NSE IFSC have been split to make them more affordable. This is called fractional ownership. All the US stocks listed at NSE IFSC are offered in the denomination between $5 and $15. At the time of writing this article, Amazon was trading at $14. So instead of buying one Amazon share, you can buy a fraction of it, which makes investing affordable.
NSE IFSC has tied up with market markers to provide two-way quotes. This helps reduce the impact costs and ensure that the prices are aligned with the live quotes in the US market.
How to invest via LRS?
To buy international stocks at NSE IFSC or India Inx, one has to first transfer money using the Liberalised Remittance Scheme (LRS) prescribed by the Reserve Bank of India (RBI). An individual can transfer a maximum of $250,000 per year (₹1.9 crore) under the LRS scheme to buy foreign stocks. So that’s the upper limit when it comes to investing overseas stocks.
Also, an investor needs to open a separate demat account in the IFSC and the stocks bought will be considered as foreign assets for tax-filing purposes.
What are the timings and the settlement cycle?
Since NSE IFSC offers trading in US stocks, it follows the US market timings. So if you are really passionate about investing in the US market, you may have to stay up a little late. The trading in US stocks at NSE IFSC commences at 8 pm IST and extends up to 2.30 am IST the next day. Also, NSE IFSC follows the US holiday calendar. So you can trade even on an Indian public holiday as long as the US markets are open.
The trading will follow at T+3 settlement cycle. It means security once bought will reflect in the demat account on the third day. Similarly, funds will get transferred to the bank account three days after the security is sold. The settlement process is longer than the onshore market, which follows a T+2 cycle.
NSE IFSC allows intraday trading, but leveraged trading isn’t allowed, nor is naked shorting. No funds or securities can be used till the settlement process is complete.
What are the tax implications?
Securities bought at the IFSC will be treated as foreign assets and will be taxed accordingly. Short-term capital gains are taxed as per the investor’s applicable tax slab and long-term capital gains are taxed at 20% with indexation. As mentioned earlier, trading at IFSC is exempted from STT and stamp duty, which is levied on domestic trading. Yay!
Summing it up
- Indian bourses have introduced trading in US stocks at GIFT City.
- NSE IFSC announced trading in 50 US stocks.
- This has made it possible to own stocks like Apple and Tesla in your demat account.
- First, one needs to open an account with a broker registered at NSE IFSC.
- Trading at GIFT City takes place only in US dollars.
- Therefore, funds need to be transferred under RBI’s LRS scheme.
- Trading takes place during US market hours between 8 pm and 2:30 am.