In a strategic move to increase foreign investment in Indian companies Indian government has unveiled an unprecedented set of rules that allows public companies to list on the International Financial Services Center (IFSC) stock exchanges. The move follows the announcement made in July 2023 and incorporates the recommendations of the report of the Working Group on Direct Listing. IFSC Released in December 2023.
Effect
Under the new rules, public companies have been allowed to be listed on IFSC stock exchanges, opening up the potential to attract funds from qualified foreign investors. However, this opportunity is only for public companies, with private companies still excluded from direct listing. Eligible investors, except Indian residents, have been allowed to purchase equity shares listed on international exchanges, bringing a new dimension to cross-border investment, while the government has focused on regulatory approvals for eligible investors from countries sharing a border with India. Emphasized. Further, the notification outlines specific pricing formulas for both listed and unlisted entities, thereby ensuring transparency and fairness in the listing process.
Potential Benefits and Concerns
This move is expected to provide many benefits to both investors and companies. The capital raising in IFSC is expected to streamline compliance-related aspects, reducing the burden associated with various laws and regulations. The International Financial Services Center Authority will act as a centralized authority, facilitating a more efficient and cost-effective listing process.
The success of this initiative requires clarification on certain issues. There are resident holding restrictions for access to the IFSC, and the move is expected to shift potential investments from the domestic tariff zone to the GIFT IFSC zone to avail of various taxation benefits including exemption on capital gains from the transfer of listed shares. Furthermore, the move challenges the existing tax treatment disparity between Indian retail investors and foreign investors using the foreign portfolio investment route and also increases compliance risks for the ultimate beneficial holder.
Additionally, the expansion of the direct listing framework beyond GIFT IFSC to other global exchanges will broaden its scope and depth, making it a more comprehensive platform for international investment.
The road ahead
While the Securities and Exchange Board of India is set to issue operational guidelines for listed public Indian companies, clarity on ultimate beneficial ownership remains a focus area. This important step aims to integrate Indian capital markets with global counterparts, attract foreign investors, and provide access to global best practices, advanced technologies, and international markets.
The commitment of the Government of India to create a conducive environment for foreign investment is further underlined by this notification, which positions IFSC as a promising hub for global investment and acts as a catalyst for the promotion of Is.
As the regulatory landscape continues to evolve, India is moving closer to its goal of becoming a preferred destination for both domestic and foreign investors.