August 19, 2009

life in financial markets: coming soon -- a global equity-based product on the NSE?

Today, if an Indian small individual investor, such as me, wants to invest in global ETFs and securities I hardly have much option other than go through (which is the only one that does not demand a minimum Rs 5 lakh worth of initial global investments) and 3-4 others like Kotak Securities, India Infoline etc. Even with them one has to convert Rs into Dollars and transmit the same to the international dollar account before executing trades on NYSE or any other exchange. The whole process is very cumbersome, time consuming and costly.

Shouldn't, therefore, an efficient stock exchange such as the National Stock Exchange of India (NSE) list on itself ETFs (exchange traded funds) and/or equity-based securities/funds that are based on indices or securities from outside India (and run/managed by international ETF providers) or that are already listed on exchanges elsewhere outside India? This will make it possible for an investor like to me to buy or sell the global ETF/security right here in India and settle the trade on NSE in rupees. Its unfortunate but the NSE has been delayed in doing something about it despite having NYSE-Euronext as one of its shareholders (holding 5% stake).

Well, a little bird tells me that the NSE, indeed, is in the final stages of launching such a global ETF/product and an announcement is likely to be made within a week or month. As an investor, I hope I am not disappointed by the choice of the global ETF that NSE initially brings to India. I would also prefer to see a robust range of global products listed and traded on the NSE. I am particularly very bullish on alternative energy ETFs listed and traded on stock exchanges in US, UK, Singapore etc.

Lets see what NSE gets here.

UPDATE (11 MARCH 2010):
The global product has finally come. Read my 11 March 2010 blogpost


ETFGuru said...

I agree with you investing in ETFs of overseas markets through international online trading accounts (say using ICIC, Kotak, etc) is very expensive and involves currency conversion issues. However, NSE is taking steps to allow global ETFS to list here in India.
Let me tell you that one Indian fund - Benchmark Mutual Fund is planning a Hang Seng ETF which is awaiting SEBI approval. Once this is launched you can buy Hang Seng ETF just like you buy Nifty Bees/ETF.
Kudos to NSE as well as Benchmark Mutual Fund for this initiative.
Lets hope that more ETFs of major markets like Nasdaq/Dow, FTSE, DAX, SGX, etc are launched to provide diversification - this is just one asset class ie equity. More ETFs are required for assets like silver, base metals, agricultural commodities, oil, etc. We also dont have inverse ETFs and leveraged ETFs which is common in US - however given that these are complex and risky - its not very important at the moment. But more international and commodity ETFs need to be launched.
Its high time we stop singing the same tune that equity is the only and best asset class. Diversification across asset class through ETFs in a cost effective will change the future direction of investment patterns.

Rajesh Gajra said...

Yep. Benchmark MF's Hang Seng ETF is with Sebi and unfortunately, as usual, Sebi's corrupt MF department is taking ages to decide on whether to approve or reject it.
International ETF product managers tying up with NSE would offer much more diverse range of ETF listings.
I hope NSE's new annoucement will involve global ETFs. I could be wrong and it could be some other kind of global product. Lets wait and see.
And yes, equity asset class is not the only one worth investng in. ETFs on other asset classes would be great to have on the NSE.