Central Idea

In a landmark move, the Indian government has opened doors for select Indian companies to directly list on designated foreign stock exchanges.
This strategic decision aims to provide these companies with access to global capital markets and boost capital outflows, marking a significant step in India’s financial evolution.

Direct Listing vs. Initial Public Offers (IPO)

	IPO	Direct Listing
Share Issuance	New shares are created and sold.	No new shares are created or sold.
Underwriters	Typically involves underwriters.	No underwriters involved.
Price Determination	Price determined through negotiations.	Market-driven pricing at launch.
Lock-Up Period	Common for insiders post-IPO.	Typically no lock-up period.
Regulatory Compliance	Extensive financial disclosures.	Regulatory requirements met.
Capital Raising	Primary goal is to raise capital.	Provides liquidity to shareholders.

Government Notification: The Ministry of Corporate Affairs (MCA) recently issued a notification, effectively putting into action the provisions outlined in the Companies (Amendment) Act, 2020.
Key Enabler: This allows both listed and unlisted domestic companies to directly list their equity shares on the International Financial Services Centre (IFSC) in Ahmedabad.
Empowering Provision: Section 5 grants the central government the authority to permit specific classes of public companies to list specified classes of securities on foreign stock exchanges, including GIFT IFSC, Ahmedabad.
Streamlined Procedures: The government retains the flexibility to exempt such listings from certain procedural requirements, such as prospectus, share capital, beneficial ownership, and dividend distribution.

Depository Receipts: Previously, Indian companies desiring overseas listings relied on depository receipts, such as American Depository Receipts (ADR) or Global Depository Receipts (GDR). These receipts were issued to foreign investors through Indian custodians.
Past Utilization: Between 2008 and 2018, 109 companies successfully raised Rs 51,847.72 crore via the ADRs/GDRs route. However, after 2018, no Indian company pursued overseas listings.

Enhanced Fundraising: Direct foreign listing empowers domestic companies to access foreign markets for fundraising, offering improved valuations and exposure to foreign currencies like the US dollar.
Startup and Unicorn Growth: This initiative may prove particularly beneficial for startups and unicorns, providing an additional avenue for capital raising and heightened global visibility.
Boosting Forex Reserves: The move contributes to India’s foreign exchange reserves, strengthening the nation’s economic stability.
Simplified Accounting: Indian Accounting Standards (IndAS) closely align with global accounting norms, reducing the need for extensive and costly accounting preparations following US Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS).

Valuation Discrepancies: A key challenge lies in whether global investors will assign similar valuations as Indian markets. Assessing the commercial advantages of foreign listings will be a crucial consideration for Indian companies.
Clarity and Details: More detailed information is essential. This includes clarity on eligible company classes, types of listed securities, permitted foreign jurisdictions and stock exchanges, and exemptions related to procedural compliance.