How to trade in US Stocks on NSE IFSC: A ready reckoner

The platform provides an additional investment opportunity for Indians to invest in US stocks at a low cost. To begin with, stocks of eight US entities will be traded on the exchange. Alphabet, Amazon, Tesla and Microsoft figure among them.

A new chapter in the Indian stock markets has been added from today, with the start of trading of eight US stocks at the NSE IFSC.

NSE IFSC exchange, a wholly owned subsidiary of the National Stock Exchange (NSE), has been approved by the market regulator, the Securities and Exchange Board of India (Sebi). Its International Financial Services Centre (IFSC) platform in Gujarat’s GIFT City will start trading in eight US stocks from March 3.

 

What does it mean for retail investors?

Indian retail investors can now buy and sell stocks of companies like Apple, Google, Amazon and other reputed listed US companies. This does not mean that they will be listed in India. Rather, these stocks will be in the form of unsponsored depository receipts, wherein the market makers will buy shares in the US and will issue their receipts.

These receipts will be known as NSE IFSC receipts, which investors will be able to use for trading transactions through NSE IFSC’s registered brokers.

Earlier, investors had to route their investments through a registered broker in the US to buy shares of US entities.

Number of stocks to be increased

So far, eight US entities, whose stocks will be traded on the exchange, have been specified.

They are Alphabet Inc (GOOGL), Amazon Inc (AMZN), Tesla Inc (TSLA), Meta Platforms (FB), Microsoft Corp (MSFT), Netflix Inc (NFLX), Apple Inc (AAPL) and Walmart Inc (WMT).

The number of tradable stocks will be increased in a phased manner. Ultimately, stocks of the 50 largest US entities will be available.

The date of trading for other stocks planned for listing on the NSE IFSC will be decided soon. They include Berkshire Hathaway, Mastercard, JP Morgan Chase, Morgan Stanley, Nike, Paypal, Pepsico, Pfizer and Intel, among others.

Steps to invest

To start trading on NSE IFSC, investors will be required to open a trading and demat account with an NSE IFSC registered broker. There are 36 such brokers now, and include most of the large broking houses in India.

Investors will then have to transfer funds from the local bank account to the broker’s account. Once the funds get reflected in the broker’s account, investors will be able to trade in the US stocks.

For trading in these stocks, retail investors can transact on the IFSC platform under the liberalised remittance scheme (LRS) limits prescribed by the Reserve Bank of India (RBI). This currently stands at $2,50,000 for each financial year.

How will investors get ownership? 

The NSE IFSC receipts will grant ownership of stake in a company —  i.e., the number of receipts for a particular entity will be equivalent to owning a proportional stake in the company.

NSE had further specified that NSE IFSC will release the receipts of all the approved companies in a certain ratio. For example, one share of Tesla will be equivalent to 100 NSE IFSC receipts and one share of Alphabet and Amazon will be equivalent to 200 NSE IFSC receipts each.

The ratio specified for Microsoft, Netflix and Meta Platforms is one share of each of these companies will be equivalent to 50 NSE IFSC receipts.

The ratio for Apple and Walmart is decided as one share to be equivalent to 25 receipts each.

Benefits for retail investors

The platform provides an additional investment opportunity for Indian investors to invest in US stocks at low cost and the investment process will be easier.

“Investors get the option to trade in fractional quantity/value when compared to the underlying shares traded in US markets,” said Hemang Jani, Head, Equity Strategy, Broking and Distribution, Motilal Oswal Financial Services Ltd.

Investors will be able to hold the depository receipts in their own demat accounts opened in GIFT City and will also be entitled to receive corporate action benefits pertaining to the underlying stock, Jani added.

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