Indian Companies Open to Foreign Stock Exchange Listings

On January 24, 2024, the Indian government granted permission for public companies in India to directly list their securities on international exchanges located at the GIFT International Financial Services Centre (GIFT-IFSC). Companies can now list on the India International Exchange and the NSE International Exchange within GIFT-IFSC, signaling a shift from previous regulations that restricted Indian companies from issuing or listing equity shares overseas.

To support this move, a detailed regulatory framework was introduced, and the Foreign Exchange Management Act (FEMA) rule was amended on the same day, January 24, 2024.

GIFT-IFSC: A Hub for Global Capital

The International Financial Services Centre (IFSC) at GIFT City in Gujarat is designed to attract India-related financial services and transactions back to the country. As India’s first IFSC, it aims to strengthen the financial system and enhance the competitiveness of Indian companies by facilitating the smooth flow of global capital. GIFT-IFSC offers a favorable regulatory and business environment, including tax exemptions, to make companies operating from this hub more competitive on the global stage.

Conditions for Entities from Bordering Countries

Special conditions apply to entities from countries that share a land border with India, such as China. These entities must obtain approval from the central government before investing in Indian companies' equity shares. The rules specify that “a holder who is a citizen of a country sharing a land border with India, or an entity incorporated in such a country, or an entity with beneficial ownership from such a country, can only hold equity shares of a public Indian company with central government approval."

Pricing Rules for Direct Listings

For listed companies, shares must be issued at a price no lower than that offered to domestic investors. For unlisted companies, the price will be determined through a book-building process, ensuring it does not fall below the fair market value as per FEMA guidelines.

Benefits of Direct Listing for Investors

Mahavir Lunawat, Managing Director of Pantomath Capital Advisors and a member of the Working Group on IFSC Direct Listing, highlighted the significance of this development. He stated that Indian companies can now access global capital markets directly through IFSC exchanges. This move facilitates cross-border capital raising, enabling companies to seize expansion opportunities both in India and abroad. The liberalization of markets and greater integration with global securities markets further supports this initiative, transforming IFSC into a major global financial hub. This will lead to broader capital formation for Indian businesses.

Impact of Increased Foreign Investment

Higher Company Valuation: A rise in company valuation due to global investor interest could result in higher returns for investors.
Boost to Foreign Direct Investment (FDI): More foreign investment could boost confidence in the Indian market, fostering economic growth and positively impacting the stock markets.
Growth Opportunities for Companies: Access to global markets through direct listing opens new avenues for business expansion.
Flexibility in Capital Raising: Indian companies can now raise funds in both rupees and foreign currencies through GIFT-IFSC, offering a wider range of capital-raising options.