Introduction

For years, people trading on Indian stock exchanges did so using only Indian Rupees (INR). Marking a new era of global integration for its capital markets, India now offers a direct avenue for trading in US Dollars through its first International Financial Services Centre (IFRC) in Gujarat named GIFT city, a significant step forward for the nation's financial ecosystem. 

Because of this, India’s financial sector is experiencing major changes, bringing new chances for both foreign and local investors. Let's understand how trading in Indian stocks in USD works and learn why GIFT City is leading this change.

What is GIFT City and Why is it Special?

GIFT City is like a special financial area within India, much like Singapore or Dubai. Regulators consider it to be an "offshore" financial center. Because of its unique position, IFSCA (International Financial Services Centres Authority) oversees it, so it does not have to follow the INR-dominated rules of the Indian domestic economy.

The primary goal? To bring back the financial services and transactions that Indian entities and investors were conducting overseas. The key to achieving this was enabling transactions in foreign currencies, primarily the US Dollar.

The Three Main Ways to Trading in Indian stocks in USD at GIFT City

Trading in Indian stocks in USD within GIFT City isn't limited to one type of asset. It opens up a diverse portfolio of opportunities.

1. Indian Equity Derivatives in USD 

This is the most popular way for trading in Indian stocks in USD.

• GIFT Nifty: The flagship product, GIFT Nifty, is the dollar-denominated version of the Nifty 50 index futures and options. It allows global investors to trade on the direction of the Indian market without currency risk. Following the complete shift of trading from Singapore (SGX) to NSE IFSC in July 2023, GIFT Nifty has seen massive growth in trading volumes.

• Single Stock Futures: You can also trade futures and options on over 100 top Indian blue-chip stocks, all settled in USD.

2. Direct Listing of Indian Companies' Shares in USD 

This is a game-changer. In 2024, the government enabled a framework allowing Indian public companies to list their shares directly on the GIFT City exchanges (NSE IFSC and India INX).

• What it means: For the first time, global investors and NRIs can buy shares of an Indian company in USD, issued directly on an Indian exchange. This provides Indian companies with access to a global pool of capital and offers investors a straightforward way to invest.

• Who can invest: This route is primarily for non-resident investors and NRIs. As per current regulations, resident Indians cannot directly trade these USD-denominated shares of Indian companies.
  
  

3. Trading US Stocks via Depository Receipts 

GIFT City also provides a gateway for Indians to invest in the US stock market.

• NSE IFSC Receipts: You can buy and sell Unsponsored Depositary Receipts (UDRs) of major US companies like Apple, Amazon, Google, and Tesla. These receipts represent ownership of the underlying US stock.

• Who can invest: Resident Indians can invest in these US stock UDRs using the Liberalised Remittance Scheme (LRS), which allows individuals to remit up to $250,000 USD per year. This makes investing in top global companies more accessible and is settled within the GIFT City ecosystem.

How to Invest in GIFT City?

Knowing what you can trade is the first step. The next is understanding the practical process. Here’s how an investor, particularly an NRI, can get started with trading in GIFT City.

It is critical to understand that GIFT City (IFSC) and the domestic Indian market (overseen by SEBI/RBI) are two distinct regulatory ecosystems. Therefore, you cannot use your standard domestic trading app (like the regular ICICI Direct or HDFC Securities app) that you might use for trading on the NSE/BSE. These domestic platforms are linked to Rupee-denominated accounts and different compliance requirements (like the Portfolio Investment Scheme for NRIs), which do not apply to the IFSC.

The process to invest in GIFT City involves these key steps:

1. Choose an IFSC-Registered Broker: You must select a brokerage firm with a specific license to operate in GIFT City. Many leading Indian brokers, like HDFC Securities and ICICI Securities, have separate subsidiaries for this.

2. Open a Specific GIFT City Account: You must open a new Trading and Demat account specifically for the IFSC. This is a separate, digital onboarding process from any domestic account you may hold.

3. Access the Designated Trading Platform: You cannot use your standard domestic trading app. Access is provided through a platform specifically designated for GIFT City, which is typically a dedicated web-based trading terminal. Some modern fintech platforms also offer dedicated mobile apps for their GIFT City services.

Who Can Invest in GIFT City?

Access to this ecosystem is clearly defined for different investor categories.

• Non-Residents (FPIs, foreign entities) & NRIs: This group enjoys broad access to the full suite of products available in GIFT City, including derivatives, bonds, and shares from the direct listing of Indian companies.

• Resident Indians: Participation for residents is facilitated through the RBI's LRS scheme. They can invest in GIFT City by allocating funds to specific permitted securities, most notably the US stock UDRs. However, current regulations do not permit resident Indians to trade in the USD-denominated shares offered through the direct listing of Indian companies.

The Unmistakable Advantages of Trading in Indian stocks in USD

The shift to a foreign currency framework offers powerful benefits:

1. Favorable Tax Regime: This is the biggest draw.

• No Securities Transaction Tax (STT) or Commodities Transaction Tax (CTT).

• No stamp duty on trades.

• Capital gains tax exemption for non-residents on specified securities traded on IFSC exchanges.

2. Reduced Currency Risk: For foreign investors, trading in Indian stocks in USD eliminates the need to convert funds to INR and back, shielding their investments from INR/USD fluctuations.

3. Extended Trading Hours: Exchanges in GIFT City operate for up to 22 hours a day, overlapping with trading sessions in Asia, Europe, and the US, providing greater flexibility.

4. Unified Regulator (IFSCA): IFSCA acts as a single-window clearance system for all financial services, combining the powers of RBI, SEBI, and IRDAI within the IFSC. This makes the regulatory process faster and more efficient.

Getting Started: The Process

The process is streamlined and digital, aligning with the "ease of doing business" goal.

1. Choose a Broker: You need to open a trading and DEMAT account with a broker registered to operate on the NSE IFSC or BSE INX exchanges. Many prominent Indian brokers have established units in GIFT City.

2. Complete KYC: The KYC process is designed for global standards. For NRIs and foreign nationals, a passport and proof of address are typically sufficient.

3. Fund Your Account: You can fund your account in USD. Resident Indians investing in US stock UDRs will do so through the LRS process via their bank.

The Future is Global, The Future is in GIFT City

Trading in Indian stocks in USD is no longer a concept; it's a rapidly growing reality. By creating a world-class financial hub with a business-friendly regulatory and tax environment, GIFT City is positioning India as a formidable player in the global financial arena. Whether you are a foreign investor seeking exposure to India's growth story or a resident Indian looking to diversify globally, GIFT City's USD-denominated ecosystem offers a compelling and efficient platform.

Frequently Asked Questions (FAQs)

1. What is the primary advantage of trading in Indian stocks in USD? 

The primary advantage is the mitigation of currency risk for global investors, coupled with a highly favourable tax environment that eliminates costs like STT and offers capital gains tax exemptions for non-residents.

2. Is trading in GIFT City safe and well-regulated? 

Yes. All financial services and exchanges in GIFT City are regulated by the International Financial Services Centres Authority (IFSCA), a unified body established by the Government of India. It enforces robust international regulatory standards, ensuring a high degree of investor protection and market integrity.

3. Do I need a new DEMAT account to trade on IFSC exchanges? 

Yes. You need to open a separate trading and DEMAT account with a brokerage firm that is a registered member of the GIFT City exchanges (like NSE IFSC or India INX). Your existing domestic DEMAT account cannot be used for these trades.

4. What are the main tax benefits of trading in GIFT City? 

The key tax benefits include no Securities Transaction Tax (STT), no Commodities Transaction Tax (CTT), no stamp duty on transactions, and a capital gains tax exemption for non-residents trading in specified securities like derivatives and bonds.

5. What are the key risks to consider when trading in GIFT City? 

While regulated, trading in GIFT City carries risks similar to any capital market, including market risk (price volatility) and liquidity risk (the ability to sell an asset quickly). For the resident Indians using LRS, there is also currency risk if the USD weakens against the INR. Additionally, some newer products may initially have lower trading volumes compared to established global exchanges.