A guard walks past the National Stock Exchange building in Mumbai, India, on February 9, 2018. Danish Siddiqui | Reuters

A dispute between stock exchanges in India and Singapore has cast doubts on a popular investment product, and it has raised questions about the future of India’s more than $2 trillion equity market. While the problem — a disagreement about the planned listing of a derivative product — may appear to be a niche one, it potentially affects a large swath of international investors with an interest in India.

The dispute

The contract at the heart of the dispute is the Nifty 50 index futures contract currently traded on the Singapore Exchange. According to industry players, that's one of the primary ways that investors around the world have been able to play the Indian market. The derivative product in Singapore is "the incumbent, the largest and most liquid" of futures contracts on offer, Ross Finlayson, on the iShares capital markets team at BlackRock, told CNBC. The National Stock Exchange of India has been providing data to the Singapore Exchange for the derivative product, which is used by offshore investors looking to hedge exposure to the Indian stock market. At present, many regard Indian equities as difficult to access because of the country's tax rules and other roadblocks. Now, that contract in Singapore is set to go away following an announcement from the NSE and two other Indian exchanges that they would be ending agreements to provide market data to overseas exchanges. That would affect the trading of offshore derivatives, including the SGX's Nifty 50 Index Futures. The NSE said the move was needed as derivative trading based on Indian securities had resulted in capital migrating offshore. That was “not in the best interest of Indian markets,” the NSE said in a release. Following the announcement, the SGX said it would list newly created Indian derivative products, but its plans were dealt a blow by the NSE, which took the dispute to court. That was because the proposal was seen as identical to the incumbent SGX Nifty futures, local media outlet The Times of India said, citing sources. For now, the issue remains in a holding patter. An Indian court last month ordered the NSE to extend the existing license for SGX Nifty futures for at least two successive contract months after arbitration — which the Indian stock exchange said is expected in February 2019 — is completed. Both the SGX and NSE told CNBC they had no additional updates on the matter beyond statements released last month.

Uncertainty