How GIFT Nifty Influences Nifty 50 And Indian Market Sentiments?

The introduction of the GIFT Nifty futures contract has brought a fresh dimension to how traders and investors view the domestic benchmark. Because Gift Nifty is traded over extended hours and may include international participation, its price movement shows early signals for the broader market. In this aspect, we’ll explore what the GIFT Nifty is, how it is connected with the Nifty 50 and its influence on the overall equity market.

What is GIFT Nifty?

GIFT Nifty is a US dollar-denominated futures contract based on the Nifty 50 index. It is traded on the NSE International Exchange (NSE IX) at the GIFT City financial centre. This investment option's trading hours span global market timings. It is settled in US dollars and regulated under the International Financial Services Centre (IFSC) regime.

How is GIFT Nifty related to Nifty 50?

The link between the two indices is critical in understanding the relationship in which one affects the other. Here are a few factors that link both of these strategies:

• Nifty 50 is a domestic large-cap index that is used to track the performance of 50 major listed firms.

• GIFT Nifty is based on the Nifty 50 index because it is a futures contract based on the underlying 50-stock index.

• Since GIFT Nifty is not traded within the conventional domestic time frame, it provides a preliminary assessment of the positions of international investors in relation to the domestic market opening.

• Any Changes in GIFT Nifty are often observed as an early indicator in the domestic market upon its opening.

Influence on market sentiment

GIFT Nifty is widely used as a sentiment indicator in the securities market because it reflects how global investors are positioned ahead of the domestic market opening. It often highlights the likely direction and tone for the trading day.

• Pre-market cue: If GIFT Nifty rises strongly during the market hours, it usually suggests that the domestic market may open on a positive note.

• Global transmission of events: Since GIFT Nifty trades during the European and American sessions, global news related to economic reports or geopolitical events gets reflected immediately.

• Foreign Investor Positioning: Global investors use GIFT Nifty to hedge or express directional views before the local market opens.

• Opening gap impact: GIFT Nifty may move significantly if the domestic exchange is closed, and this often leads to opening gaps in the Nifty 50.

Impact on Nifty 50 Cash and Derivatives Markets

Apart from the market sentiment, GIFT Nifty has a practical impact on how traders position in the cash and derivatives market. Here are a few aspects that significantly impact the domestic markets:

• Opening Perception: Traders may observe their Nifty 50 positions if Gift Nifty shows a sharp upward or downward move. This movement often results in early momentum or rapid price changes within the first hour of trading.

• Heritage and Arbitrage: Institutional participants may hedge domestic positions through GIFT Nifty during global hours, and this alignment helps to maintain stability across both markets once the domestic session begins.

• Improved Liquidity: Since international participants can trade GIFT Nifty easily, it increases the depth of the futures market linked to Nifty 50.

• Risk Management: The extended trading hours of the GIFT Nifty allow investors to reduce exposure and act on oversight events before the domestic market opens. The phenomenon helps to reduce unexpected risk at the opening bell.

GIFT Nifty vs. Nifty 50

GIFT Nifty plays a crucial role in shaping expectations for the Nifty 50 through reaching global market cues during extended trading hours. Thus, comparing both helps investors to understand why GIFT Nifty movements often set the tone for Nifty 50's opening direction and overall market sentiment.