Direct Listing on Foreign Exchanges

November 4, 2023

GS Paper III Indian Economy

Context:

The Government recently permitted certain Indian companies to directly list on select foreign stock exchanges, which will allow these companies to access global capital and boost capital outflows.

Direct listing on foreign exchanges: What does it mean for Indian Companies

According to the Ministry of Corporate Affairs (MCA), the provision was announced in the Companies (Amendment) Bill, 2020, and came into effect on October 30, 2023.

In July 2023 government enabled listed and unlisted domestic companies to directly list their equity shares on the International Financial Services Centre (IFSC), Ahmedabad.
How do companies currently list on foreign Stock Markets?
- Domestic listed companies would use depository receipts — American Depository Receipts (ADR) or Global Depository Receipts (GDR) — to list in the overseas market.
- Under this route, Indian companies wanting to get listed on foreign stock exchanges would give their shares to an Indian custodian, and depository receipts would be issued to foreign investors.
Benefits
- Better valuation & Global Exposure: It will offer them better valuation and exposure to trade in foreign currency such as the dollar,
- Fundraising: It may also benefit the startup and unicorn community as another avenue to raise funds and increase their profile globally.
- Enhanced Foreign Exchange: It will also add to India’s foreign exchange kitty.
Challenges
- Market valuations of these listings by global investors
- Uncertainty of the commercial benefits of these listings
- Volatility of Foreign exchange

Key Terms

A depositary receipt (DR) is a negotiable certificate representing shares in a foreign company traded on a local stock exchange.
Depositary receipts allow investors to hold equity shares of foreign companies without the need to trade directly on a foreign market.
ADR: They are shares issued in the U.S. from a foreign company through a depositary bank intermediary.
GDR: They are shares issued in foreign markets of more than one country. For example, an Indian company that issues its shares through a depositary bank intermediary into the London market and the United States market.