Domestic companies can tap foreign markets to raise funds. What does it mean for companies and investors?
Traditionally, Indian companies seeking public funding through equity markets had a single route – an IPO leading to listing on domestic exchanges like NSE and BSE. However, a recent policy shift by the central government has opened doors for unlisted Indian companies to list on foreign stock exchanges directly.
Let’s delve into the significance of this development.
On October 30, 2023, the central government issued a notification allowing unlisted Indian companies to directly list on foreign stock exchanges. While companies can choose a foreign listing destination, the government will specify approved jurisdictions. IFSC, in GIFT City Gandhinagar, will be on the list of approved jurisdictions for an overseas listing.
Previous Foreign Listing Process
Historically, Indian companies seeking foreign listings used Depository Receipts (DRs). In this process, companies sold their shares to an Indian custodian, who then collaborated with an overseas depository bank to facilitate the listing on foreign exchanges. The choice between American Depositary Receipts (ADRs) and Global Depositary Receipts (GDRs) depended on the intended listing location. For instance, companies like Infosys, HDFC Bank, and Tata Motors have their ADRs listed on the New York Stock Exchange (NYSE), deriving value from their underlying Indian shares.
What’s in it for Indian Companies?
The approval for direct foreign listings presents a global opportunity for Indian companies. This strategic move enables them to expand their presence worldwide, access global capital, and potentially secure premium valuations from international investors who better comprehend their business. Unlike the domestic scenario, where loss-making companies face scepticism, foreign listings might offer a more favourable perspective.
However, navigating compliance and taxation requirements in both India and foreign jurisdictions poses challenges. Additionally, geopolitical tensions between India and the listing country could impact the listed companies. As Indian businesses step onto the global stage, managing these complexities will be critical for ensuring the success of foreign listings.
That’s it for today. We hope you’ve found this article informative. Remember to spread the word among your friends. Until we meet again, stay curious!
*The article is for information purposes only. This is not an investment advice.