According to government officials and industry insiders, India has halted plans to allow local companies to list on foreign exchanges as it attempts to strengthen its own capital markets, dealing a blow to foreign funds and stock exchanges hoping to profit from the country’s IT boom.
After officials suggested late last year that new guidelines for overseas listings would be unveiled in February, New Delhi’s move is a sharp turnaround in policy. find out more
According to three senior government officials with direct knowledge of the decision, the plan has been placed on hold because India feels there is sufficient depth in local capital markets for companies to seek cash and obtain reasonable valuations. They did not want to be identified because the decision had not been made public.
India’s finance ministry did not make any comments on the issue.
Excited retail investors and a pandemic-induced rush of easy money have pushed Indian equities markets to new highs, enticing a host of Indian tech founders to go local with their initial public offerings (IPOs).
In 2021, more than 60 firms made their market debut in India, raising a total of $13.7 billion, more than the previous three years combined. The Russian invasion of Ukraine has roiled Indian stocks, as it has other global markets, and the resulting volatility has caused IPO preparations to be postponed.
However, after digital payments app Paytm, backed by China’s Alibaba (9988.HK), Ant, and Japan’s Softbank, fell on its debut in November, raising worries about valuations, the prospects for future listings dimmed. Its stock has dropped by 75 per cent compared to its issue price.
According to Reuters, even before Paytm’s demise, US venture capitalists such as Tiger Global and Sequoia Capital pressed Prime Minister Narendra Modi to allow Indian companies to list abroad in order to attain greater values.
The overseas listing restrictions, according to a second government official, are now in “limbo,” and both officials mentioned the stock market debut of food-delivery company Zomato, which had a high valuation, as contributing to the shift in perspective.
Zomato’s first public offering (IPO) on the Mumbai Stock Exchange in July was 38 times oversubscribed, resulting in a 66 percent increase in its stock price. Nykaa, an Indian cosmetics-to-fashion portal, soared 96 percent on its first public offering, valuing the company at roughly $14 billion.
In recent months, both have given up a lot of their gains.
The proposal has also been put on hold, according to two industry sources briefed by government officials, which is a setback for exchanges in New York and London, which had been fighting for a piece of India’s quickly rising start-up economy.
Global investors have lobbied India to enable foreign listings, claiming that doing so will provide Indian companies with better liquidity and money. However, such a move, which has been discussed in India since at least 2020, has polarised policymakers.
The plan was opposed by the nationalist Swadeshi Jagran Manch, the economic wing of Modi’s ruling party’s ideological parent, which claimed that such listings would mean less Indian oversight of domestic firms and that trading in shares of companies listed abroad would be more difficult for Indian investors.
Despite strong opposition, India’s Revenue Secretary stated in August of last year that foreign listing regulations might be released by February.
Representatives of the Swadeshi Jagran Manch urged India’s Finance Minister in a closed-door meeting in January to delay the policy announcement, according to a person with direct knowledge.
Despite the fact that the group is often seen as having significant influence over India’s policymaking, it is unclear whether that particular meeting influenced the government’s decision.
According to one top industry executive who has pressed New Delhi to allow international listings, the decision might put pressure on Indian corporations to make other reforms.
“Some (investor) funds may want Indian companies to register outside the country,” the executive said, adding that such a move could allow them to list overseas more easily.
(Adapted from Reuters.com)