Explained: The implication of domestic investors being allowed to trade in top US stocks

What is the News?

Investors in India have been allowed to trade in select US stocks through the NSE International Exchange (NSE IFSC).

Note: Currently, Indian investors buy US stocks through designated online brokers who have permission from Indian and US regulators to offer such services.

What does this mean?

Domestic investors can purchase US stocks like Amazon, Alphabet, Tesla, Meta Platforms, Microsoft, Netflix, Apple and Walmart through the NSE International Exchange (NSE IFSC).

However, the offering will be in the form of unsponsored Depositary Receipts(DRs). For example, one share of Tesla will be equivalent to 100 NSE IFSC receipts.

Note: When a company offers Depositary Receipts(DRs) to investors, they are known as sponsored DRs. Where a company does not directly offer such DRs, they are called unsponsored DRs.

Who can invest in these stocks?

A person resident outside India, Non-resident Indians and Individual resident in India who is eligible under FEMA (Foreign Exchange Management Act) to invest funds offshore, to the extent allowed in the Liberalized Remittance Scheme(LRS) of Reserve Bank of India.

Under the LRS framework, the RBI permits the resident individuals to remit up to USD2,50,000 per financial year for any permitted current or capital account transaction.

What are the advantages of investing through this in US stocks?

​​The business model offered by NSE IFSC will not only provide an additional investment opportunity to the Indian investors, but also make the entire process of investment easy and keep it at a low cost.

The proposed trading framework will also make US stocks affordable to Indian retail investors. Furthermore, all the trades will be covered under the investor protection framework at NSE IFSC.

What is NSE IFSC?

NSE IFSC (NSE International Exchange) was incorporated in 2016. It is a fully-owned subsidiary of the National Stock Exchange of India Limited (NSE).

Stock exchanges operating in the Gujarat International Finance Tech City (GIFT-IFSC) are permitted to offer trading in securities in any currency other than the Indian rupee.

What is NSE IFSC receipt?

It is a negotiable financial instrument in the nature of an unsponsored ‘depositary receipt’, which means it is a derivative product and investors can directly trade in the stocks without having to do so through registered online brokers.

Just like shares are purchased domestically, shares can be bought in the US and issue receipts against them, which will be known as NSE IFSC Receipts.

Source: This post is based on the article “Explained: The implication of domestic investors being allowed to trade in top US stocks” published in Indian Express on 10th Mar 2022