India will allow the listing of India companies directly on the International Financial Services Centre (IFSC) in the GIFT City.
In addition, companies would also be allowed to list on specific foreign bourses.
Currently, a company can only list American Depository Receipts and Global Depository Receipts on foreign exchanges.
The effect of such listings could have different effect for stakeholders involved.
What Does Direct Listing Offer for Investors?
For investors, GIFT City offers simpler regulations, tax breaks, dollar-denominated trading, and even specific benefits for entities like family offices. Foreign investors have already been trading in products like the GIFT Nifty, which was earlier known as SGX Nifty in Singapore.
A business set up in the GIFT City can have an income tax holiday of 10 continuous years.
Earlier, a product like SGX Nifty would have significantly higher turnover on overseas exchanges compared to national exchanges due to lower taxes, and other sops.
Today, the GIFT Nifty attracts global traders, and the entire trading in Nifty derivatives takes place in India.
Trading volumes in the products have been hitting new highs regularly, and has brought back trading volumes back to India. The average daily turnover volume increased from $3.4 billion in 2020 to $21.2 billion in 2022.
With direct listings, foreign investors would have easy investment access to both listed and unlisted Indian companies. In addition, foreign investors are not required to convert their money into rupees since trading is dollar denominated.
Hence, transaction costs would be significantly lower while hedging costs would be non-existent, and wouldn’t eat into the investor’s returns.
How Does Direct Listing Benefit Companies?
Some companies believe that listing outside India would help them garner higher valuations, as compared to India, especially in spaces like technology.
Listing on the IFSC would allow these companies to access global institutional capital without having to list outside India.
For unlisted companies like startups, that might be apprehensive about listing in India, a GIFT City listing could help them garner a valuation comparable to global peers.
While some have argued that the emergence of the GIFT City’s exchanges could create trouble for incumbent bourses like BSE and NSE, such fears might not be realistic.
For one, both the exchanges in the GIFT City are owned by GIFT City, hence, these two exchanges would still remain the ultimate beneficiaries.
In addition, both buyers and sellers prefer high liquidity, which is available at the main exchanges of the NSE (National Stock Exchange) and the BSE (Bombay Stock Exchange).
However, distribution of revenues over two different exchanges in a business which has a high fixed cost component could mean lower overall margins.
The direct listing proposal has been in discussion for a long time. In 2018, SEBI (Securities and Exchange Board of India) has come out with a list of preferred overseas destinations for Indian companies to list directly. The included destinations like the US, Hong Kong, Singapore, China, Japan, the United Kingdom and several others.
Changes to direct listing regulations would mean that companies incorporate in India can directly list abroad without any regulatory burden. Hence, allowing companies to list overseas directly could prevent companies from incorporating outside in order to list overseas.
Both direct listing on IFSC and on foreign bourses will help free up the flow of capital.
At the same time, companies would be able to diversify their sources of capital, while raising capital at terms and costs which are more comparable with global peers. Liberalised regulations and incentives could also help GIFT City become an international financial centre like Singapore.
Relaxation of regulations can also prevent the migration of family offices, funds, and companies into other jurisdictions.
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