The US stock market is virtually coming to the doors of Indian investors, as they will be able to trade in the two top indices of the American bourses right here in Dalal Street from tomorrow.
The Dow Jones Industrial Average (DJIA) and the S&P 500 — the two of the most followed indices of the US stock — would start trading from tomorrow on the National Stock Exchange (NSE), India’s biggest bourse.
The move would allow investors to take positions on trends thousands of miles away in the US market on Dalal Street, the commonly used term for the Indian stock market by virtue of being its traditional address.
The S&P 500 is an index of the 500 leading companies of the US economy, while the DJIA comprises the 30-most liquid blue-chip companies based in the United States.
This is the first time that derivative contracts on global indices are being launched in India. This is also the first time in the world that futures contracts on the S&P 500 index are being introduced and listed on an exchange outside of their home country, the US.
In order to encourage active participation in trading of these indices, the NSE has decided that it will not levy any transaction charges on trades done till February 29, 2012.
Trading would begin tomorrow in futures contracts on both the indices and options contracts on the S&P 500 index. The contracts would be rupee-denominated and would be traded during Indian market hours.
The NSE has said that all the member brokers of its equity derivatives segment would be able to trade in this product for themselves and their clients.
“Derivative contracts on these global indices will provide Indian investors easy access to US markets in Indian market hours, without taking any currency risk,” the NSE Managing Director and Chief Executive, Mr Ravi Narain, said.
The new products would help the Indian investors in portfolio diversification and hedging of risks.
Movements in these indices might not be affected by the economic and market trends in India and therefore, these indices can help the investors reap some benefits even in times of losses in Indian markets, provided there are favourable trends in the US markets, market experts said.
Besides, Indian investors can now take positions based on expected news flow in the US market.
In late June, NSE had got market regulator SEBIs approval to launch derivative contracts on these two US indices. SEBI had released the regulatory framework for such products in January.