Global Indices

Indian investors are now permitted to invest in foreign assets subject to certain limits set by the Reserve Bank of India (RBI). Direct investments in foreign assets involve high transaction costs. They also expose the investors to foreign currency risk in addition to equity market risks.

The National Stock Exchange (NSE) is launching futures trading on global indices (S&P 500 and DJIA). This will enable investors to take exposure to the USA markets without facing foreign currency risks, as the contracts shall be denominated in Rupee terms.

S&P 500 and DJIA are two of the world's most tracked indices and are considered as the barometers of the USA economy.

S&P500 is a free-float-capitalization weighted index of 500 leading companies in the USA.

DJIA (Dow Jones Industrial Average) is a price-weighted index of 30 large blue chip stocks traded on the USA exchanges.

Futures contracts in global indices offer various advantages such as:

• Exposure to global indices without vulnerability to foreign currency risks.
• Hedging opportunity for investors with direct exposure to the USA markets.
• Hedging opportunity for investors seeking to hedge their Indian portfolios against foreign event risk.
• Hedging tool for investors with a high exposure to stocks in sectors whose financial performance depends significantly on the prospects of the USA economy.
• New opportunities for adopting trading strategies like GAP trading and Simultaneous trading by taking advantage of positive correlation between indices.