Realising GIFT City’s potential: Currently, there is limited differentiation of GIFT City vis-à-vis other IFCs such as Singapore or Mauritius – Opinion News

By Mayank Jha and Nishant Mishra

The Gujarat International Finance Tec-City (GIFT) City is a testament to India’s ambitious goals in the global financial sector. Over the last three years, regulatory, legislative, and infrastructure developments have accelerated both the pace of activity as well as interest in GIFT City. As a result, narratives around GIFT City are changing. The fact that it has been identified as one of the emerging financial centres in the Global Financial Centres Index 2023 serves to validate its impending dominance further.

Since the formation of the International Financial Services Centre Authority (IFSCA) in 2020, the financial ecosystem at GIFT City has evolved considerably. Today, it is home to an array of funds and banking entities, with over 40 funds mobilising more than $15 billion. GIFT Nifty has set new records in single-day trading since its start in July 2023 and currently has a daily turnover of more than $12 billion (six times the daily turnover of Nifty). Going forward, the presence of deep and liquid capital markets will serve to further accelerate GIFT City’s ascent and transform the status of Indian financial markets from a local to a global player.

Most global financial districts owe their success to robust capital markets. Hong Kong, as a gateway to China, eased investors into Chinese markets with fewer capital controls and relaxed compliance. Initiatives like the Shanghai-Hong Kong Stock Connect and listings of industry giants such as Alibaba and Tencent drew foreign investors seeking exposure to one of the world’s largest economies. Singapore aimed to be the central hub for investors looking to tap into the Southeast Asian (SEA) region. The city-state incentivised fund houses to establish a presence by offering an attractive $500 million management fund. With the passporting of funds across Europe, a low-tax environment, an extensive tax network, and a developed ETF market, Ireland became a hub for AMCs within Europe.

While GIFT City’s capital markets have started, there’s a lot more to do to make them strong and attractive. Currently, there is limited differentiation of GIFT City vis-à-vis other IFCs such as Singapore or Mauritius. Further, limited stock offerings and an investment threshold of $150,000, a contrast to DIFC’s more accessible minimum subscription of $50,000 for exempt funds, can hinder the participation of accredited investors and NRIs. Additionally, the absence of mutual funds limits the opportunity for low-cost, diversified access to Indian markets.

The flywheel effect needed for GIFT City to break into the top-20 centres can only be achieved by deepening its capital markets. As multiple pathways emerge, there are a few recommended initiatives that GIFT City could consider immediately. First, it should expand the breadth of stock offerings by including more international and domestic stocks. In that regard, the recent decision to allow Indian companies to list directly on GIFT IFSC exchanges is commendable. Second, GIFT City can consider revising the LRS limits for accredited investors alongside a differentiated TCS framework for investment. This will signal a pro-investor stance. Third, there is an opportunity to grant GIFT IFSC entities the privilege to interface with global exchanges as this would offer greater recognition. Finally, GIFT City can also pioneer sovereign masala bonds, which would help in further diversifying the financial products on offer.

Deepening capital markets will ignite a network effect—as more participants enter, trading activity will rise, thereby reducing costs like brokerage and trade impact fees. A growing investor base including HNIs, family offices, pension funds, and insurance companies will bring in new sources of capital. As the market grows, product side innovation will accelerate and engender new business opportunities. Increased market liquidity will enable fund raising and create more investment avenues, benefitting the ecosystem (asset managers, exchanges, brokers, and custodians).

A thriving ecosystem will inevitably become a magnet for talent—it follows capital and not the other way around. Singapore and Hong Kong, home to more than 1000 assets managers, have successfully attracted swathes of global talent with expertise across markets, thereby enhancing credibility and better serving international investors. This will create a positive cycle for capital markets, where superior financial talent boosts the presence of brokers and asset management companies.

Over the next five years, GIFT City’s goal should be to list at least $1 trillion of Indian securities along with UDRs of top companies from Europe, Japan, and emerging markets. It should also be the primary choice for ECB and foreign debt raised by Indian companies. The current product suite should be expanded from GIFT Nifty to sector-level stock derivatives, index derivatives, and currency derivatives. GIFT City has all the ingredients to catapult India’s growth in the coming decade. With a keen focus on capital markets, it can author a story that holds global significance.

Writers are respectively, managing director & partner and principal, BCG