The Finance Minister’s statement that Indian companies will soon be allowed to directly list on overseas exchanges and the GIFT IFSC will come as a relief to domestic start-ups which are struggling to find an exit route for their investors. Inclusion of the Indian offshore financial centre in this facility is especially astute as it can prove to be a catalyst in attracting foreign investors to the centre.

As of now, listed Indian companies can use American Depository Receipts or Global Depository Receipts to make their shares accessible to overseas investors or list debt instruments on overseas exchanges. A handful of companies including Infosys, ICICI Bank and HDFC Bank have used this route, but it’s not available for unlisted start-up companies. While the Companies (Amendment) Bill, 2020, had cleared the decks for allowing direct overseas listing, the necessary regulatory changes are yet to be completed. The Finance Minister’s statement suggests that this would be facilitated soon, allowing start-up companies to command healthy valuations from overseas investors.

Allowing listing on the GIFT City exchanges will help attract both domestic and foreign investors to the IFSC. Currently, domestic investors can invest in the instruments offered at the IFSC using the funds allowed to be taken outside the country within the liberalised remittance scheme limit of $250,000. But since the RBI does not allow the LRS money to be used for trading in derivatives, domestic investors are unable to deploy it in the IFSC; mostly stock, index and currency futures and options are traded on the two exchanges in the GIFT City. If Indian companies start listing their shares in the GIFT City, domestic investors can take advantage of the lenient tax rules there. Similarly, if a highly popular public issue akin to the Coal India IPO, which attracted foreign portfolio money amounting to more than ₹1-lakh crore is done on the GIFT IFSC, not only will it move the IFSC into the limelight, but will also help bring FPIs to the Indian offshore centre. Listed Indian companies could make a follow-on public offer on the GIFT exchanges, to attract funds from foreign investors. While the ecosystem will take some time to establish, the government could take the lead here, making disinvestment offers on the GIFT IFSC. The regulator needs to be watchful while giving the nod to domestic companies for listing overseas and on the GIFT IFSC. Allowing companies with doubtful credentials can erode the credibility of the Indian offshore centre.

The concern that the GIFT exchanges could cannibalise some volume from domestic exchanges is not unfounded, but the pool of listed shares on domestic exchanges is far bigger. So foreign portfolio investors are unlikely to move away from the domestic stock market altogether. Going forward, a link can be established between onshore stock exchanges and the exchanges in the GIFT City, similar to the Shanghai-Hong Kong stock connect.

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