What GIFT Nifty Signals About Market Direction and Its Link to Nifty 50

For Indian equity traders and investors, GIFT Nifty has become a critical pre-market indicator of market sentiments, especially before market opening. Its action and performance are closely monitored each morning to determine whether the Nifty 50 index will open positively, negatively, or sideways that day. Although GIFT Nifty is a valuable pre-market indicator, it must be noted that it is a trigger and not a clear indicator.

Within this article, we’ll delve into what GIFT Nifty actually is, how it operates, why it’s significant to understand the changes that occur in it since it affects the Nifty 50, and finally, how to read the signals for it in the correct context.

What is GIFT Nifty?

The full form of GIFT Nifty is Nifty 50 futures traded on NSE International Exchange (NSE IX), which is a contract traded at Gujarat International Finance Tec-City (GIFT City), an international financial hub located in India. It replaced SGX Nifty in July of this year because of the transfer of open positions to GIFT City and the discontinuation of connectivity between Singapore and NASDAQ.

GIFT Nifty is basically a futures derivative and is based on the Nifty 50 index, which is the benchmark of the top 50 large cap Indian stocks. As it is active 21 hours a day (covering all major global trading sessions), it generates a price signal even when the Indian markets are closed.

Why Traders Follow GIFT Nifty

GIFT Nifty operates during Indian market hours, which means that price actions that take place in GIFT Nifty at night or in the early morning hours may be indicative of how external market demands may impact Indian markets upon opening. Traders and investors closely observe GIFT Nifty for these reasons:

1. Pre-Market Indicator for Nifty 50

Many traders use GIFT Nifty’s overnight moves as an early read on how the Indian market might open. If GIFT Nifty is significantly higher than the previous close. For instance, if GIFT Nifty performs outstandingly, with a large jump of 80-100 points, it can be a directive on how Nifty 50 will perform favourably, considering a renewed, optimistic mood globally.

However, it is important to point out that this is simply a probabilistic clue, as this may not necessarily succeed, as market conditions, market news, and new information may contravene this overnight market trend.

2. Reflects Global Investor Positioning

As GIFT Nifty is traded by foreign participants outside Indian market hours, it reflects global risk sentiment and macros, such as US stock market movements, crude prices, and geopolitical situations, often prior to the Indian market opening. This makes GIFT Nifty an indicator of foreign institutional investor (FII) sentiment towards Indian stocks.

3. Reacts to Macroeconomic News Abroad

This is because economic statistics like inflation numbers in the U.S. or industrial production numbers in the European markets are usually released outside the market hours of India. GIFT Nifty gives immediate responses. However, Nifty 50 gives responses once the markets are open in India. This makes GIFT Nifty an early indicator.

Decoding GIFT Nifty Movements for Nifty 50

Bullish Signal

If the GIFT Nifty futures market is moving heavily above the previous day’s close of the Nifty 50 and if that is the scenario when the market opens – for example, by 70-100 points – it can be expected that the Nifty 50 will open in the green zone.

Bearish Signal

A considerably lower price by GIFT Nifty compared to the previous close may signify potential weakness or pressure on the Nifty 50. Possibly, this may arise from negative global trends, growing risk aversion, as well as negative geopolitical events.

Neutral or Low-Signal Move

If GIFT Nifty makes little or tentative movements around its former closing prices or starts to move in a random or indecisive manner, then it may mean a level of uncertainty or conflicting signals emanating from around the globe. Traders then patiently wait for market opening prices to gain a clearer perspective.

Benefits of Tracking GIFT Nifty

Early Insights of Market Trend

GIFT Nifty gives the first, or among the first, price signals related to the direction of equity in the Indian market, or the world at large, when the Indian market itself is closed.

Risk Management and Hedging

Institutional investors employ GIFT Nifty for hedging purposes, depending on global developments, adjusting their level of risk exposure for Indian stocks prior to starting trading at home.

Extended Trading Window

While the Nifty 50 derivative contracts are available only during the Indian market hours, the expanded timeframe of the GIFT Nifty enables the global community to respond to global events in a quick and efficient manner.

Real-World Usage: Practical Examples

Here are examples of how GIFT Nifty signals are interpreted in practical trading situations:

• Positive GIFT Nifty Movement:Positive GIFT Nifty movement on some mornings has also been identified to exhibit bullish opening trends for Nifty 50 by analysts, provided the global market environment is in its favor.
• Other times, the actions in GIFT Nifty’s soft start signals have synchronized with mixed signals in the Asian markets as well as the US markets to indicate a cautious opening in the local markets.
• GIFT Nifty has also traditionally indicated weak market openings related to geopolitical issues or macro events before the start of an Indian market session.

Summary: How To Use GIFT Nifty Correctly

• Early Market Cue: GIFT Nifty provides one of the earliest market cues about the upcoming market sentiment for the Nifty 50 market, as it is open when the Indian markets are closed.
• Global Sentiment Reflection: It includes overnight global news and foreign positioning and macroeconomic events.
• Correlation with Nifty 50: Although it shares a close link to Nifty 50, the GIFT Nifty index has an inherent tendency to differ at times, particularly in less liquid conditions or environments where domestic news takes precedence.
• Not an Independent Predictor: Smart market participants use GIFT Nifty signals along with pre-open auction data, global overnight cues, and business news for better decision making.