During the economic reforms of 1990s, drastic changes  were made to the economy by adoption of the  principles of liberalization, privatization and  globalization. Accordingly, as a part of this reform  initiative Indian companies were allowed to raise funds  from foreign stock exchanges indirectly through  depository receipts mechanism without an obligation  to list their shares on the Indian stock markets. Later, in  2005, restrictions were put on the Indian companies  from raising funds from foreign exchanges without  accomplishing listing in the Indian markets. However,  due to mediocre performance of the Indian capital  markets, Indian companies faced difficulties in raising  enough money from the capital market. Hence, to  combat this situation, Indian companies started setting  up offshore companies to gain entry to the foreign  stock markets. In this background, the government  decided to reform the legislation again and allow  companies to issue depository receipts through  depository receipts mechanism. In addition to this, the  government made further changes to the exiting  legislation and allowed the Indian companies to list  their debt securities through the issue of masala bonds  so that they can gain more access to the foreign  markets for their fund requirements at better rates.


Many people raised concerns for not allowing the  Indian companies to directly list in foreign jurisdiction  stock markets. To address this issue of direct listing of  equity shares of companies incorporated in India on  foreign stock exchanges and for companies  incorporated outside India to list their shares on Indian  stock exchanges, a committee was constituted under  the Securities and Exchange Board of India (SEBI)  namely the "Expert Committee for listing of equity  shares of companies incorporated in India on foreign  stock exchanges and of companies incorporated  outside India on Indian stock exchanges"1  on June 12, 2018 (Committee).The Committee mainly focused on  the need for allowing direct listing of shares from the  perspective of the Indian economy and the Indian  companies. It suggested that allowing direct listing  would increase the competitiveness of Indian  companies vis-à-vis their global competitors as it  would help them get similar benefits in terms of capital  and the cost of capital which are enjoyed by their  international counterparts.

Further, regarding the dire need to bring these changes,  the Companies (Amendment) Bill, 2020 was introduced  in Lok Sabha on March 17, 2020, which was passed on  September 19, 2020. Later, Rajya Sabha, on September  22, 2020, passed the much-needed changes for direct  listing of Indian companies. The amendment was made  to Section 23 sub clause 3 which stated:

"(3) Such class of public companies may issue such class  of securities for the purposes of listing on permitted stock  exchanges in permissible foreign jurisdictions or such  other jurisdictions, as may be prescribed."


Regarding the permissible jurisdictions outside India,  the Committee recommended to have a proper  framework and suggested to include jurisdictions  which have treaty obligations to share information and  cooperate with Indian authorities in the event of any  investigation. It recommended that permissible  jurisdiction should be defined to mean a jurisdiction:

  1. That is a member of the Board of International Organization of Securities Commissions (IOSCO), and whose securities market regulator  is either a signatory to the IOSCO's multilateral  memorandum of understanding or is a signatory  to a bilateral memorandum of understanding  with SEBI for information sharing arrangements;  and
  2. That is a member of the Financial Action Task Force (FATF); and
  3. That is not identified in the public statement of the FATF as: (i) a jurisdiction having strategic anti-money laundering or combating the  financing of terrorism deficiencies to which  countermeasures apply; or (ii) a jurisdiction that  has not made sufficient progress in addressing  the deficiencies or has not committed to an  action plan developed with the FATF to address  the deficiencies;
  4. Notified by Central Government in consultation with SEBI and/or other regulatory authorities, following an overall review and evaluation of  such jurisdiction's capital markets regulations.

The criteria prescribed are similar to the criteria for  determining jurisdictions where listing of masala  bonds under the relevant Reserve Bank of India (RBI)  circular can take place. Accordingly, the initial list of  recommended permissible jurisdictions along with the  specified stock exchanges includes following places:  United States of America (NASDAQ and NYSE), China  (Shanghai Stock Exchange and Shenzhen Stock  Exchange), Japan (Tokyo Stock Exchange and Osaka  Securities Exchange), South Korea (Korea Exchange Inc.),  United Kingdom (London Stock Exchange), Hong Kong  (Hong Kong Stock Exchange), France (Euronext Paris),  Germany (Frankfurt Stock Exchange), Canada (Toronto  Stock Exchange) and Switzerland (SIX Swiss Exchange).


There are numerous benefits of direct listing for the  Indian economy and the Indian companies. This step  will improve the ease of doing business in India by  making available much required capital for running  the business from foreign jurisdictions.

  1. Increased competitiveness for domestic companies – Domestic companies especially in the technology and internet sectors face competition from foreign multinational companies both in India and globally. Allowing foreign listing  of domestic companies will increase their competitiveness vis-à-vis their global competitors by enabling them to derive the same benefits, whether in terms of access to capital (including  at reduced costs) or in terms of other strategic  advantages, thus benefiting the health of the Indian economy.
  2. Alternate Source of Capital for domestic companies – Accessing capital markets in the foreign jurisdiction allows to raise money with relatively lesser cost of capital in advanced economies  with developed financial markets. Thus, international listing enables companies incorporated in  India to raise capital in the market which optimizes cost and provides the greatest benefits in  terms of value, quantum, quality and branding.
  3. Broader Investor Base – Listing on foreign jurisdiction broadens and diversifies the pool of investors which increases the demand for the company's shares and helps to decrease the cost  of capital. Indian start-up or emerging-growth  companies will be able to access capital from investors overseas who may be more receptive to  their securities than Indian investors, who have  typically focused on companies with proven  track records of profitability and growth, and  have generally exhibited less appetite for startup or emerging-growth companies.
  4. Better valuation – Companies listing on foreign stock exchanges generally obtain more accurate valuations on their securities when compared  to that of domestic capital markets. Listings on  foreign stock exchanges can also increase analyst coverage for the listed shares and facilitate  clearer comparisons against other peer companies that are listed overseas, each of which contribute towards more accurate benchmarking  and valuations.
  5. Strategic benefits – Domestic companies experience increase in their brand's awareness and visibility, and gain a currency of exchange with which to pursue their international expansion  plans.
  6. Availing benefits under other schemes: Direct listing would allow the Indian companies to use the Liberalized Remittance Scheme to use up to  $250,000 per financial year for investment/expenditure outside India.


For Indian start-ups, permission for foreign direct  listing would be extremely beneficial as majority  of domestic start-ups fails to go public in the  Indian stock markets. Now, the venture capitalist  and the private equity firms can use overseas Initial  Public Offering (IPO) in the liquidation preference  as an exit option. In India, the start-ups are not  able to go public in Indian stock exchanges as they  don't have sufficient profits to get listed in the  market though they have high growth prospects  factor. Listing in overseas jurisdiction helps  companies to access capital at lower cost and at  better valuation.


SPACs are the most viable option available to the startups as it would be difficult for a start-up company to  get an IPO without any proper presence or financial  performance to meet the cost involved in IPO. SPACs  raise money from the public with an intention to  acquire companies with good growth prospects  making it relatively easier for start-ups to enter foreign  stock markets. 2

Already two venture capital firms,  Elevation Capital and US-based Think Investments, are  setting up a SPAC focused on Indian tech  companies seeking to list in America. This would help  the Indian tech companies who want to go public in  overseas stock market, as this SPAC would be focusing  on the Indian technology ecosystem. Indian companies  such as Grofers and ecommerce major Flipkart have  already started exploring the SPAC route for foreign  listing and few other Indian start-ups such as Policy  Bazaar, Nykaa and Delhivery plan to go public through  the SPAC route.


Indian companies are now allowed to list their shares  on foreign stock exchanges through Global Depository  Receipts and American Depository Receipts. Overseas  listing of securities will help them to raise funds from  foreign stock exchanges. This will enable them to have a better presence in the global markets and give them  a global level playing field. As majority of start-ups lack  profit in initial stages, this could be a crucial competitive  edge for companies which have better growth  prospects even without meeting the profit criteria.




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