Mint Explainer: What is direct overseas listing and how will it benefit firms?
Nirmala Sitharaman said the government has decided to allow companies to list at the International Financial Services Center (IFSC) GIFT City to start with before expending this to other countries. Generally, companies incorporated and operating in a country are listed on local stock markets. However, some new-age companies require sophisticated investors who are willing to take big risks.
The most popular destination for such companies has been the Nasdaq. Some also aim to list on the New York Stock Exchange (NYSE) and the London Stock Exchange, among others. There are two key reasons why Indian companies have been pushing for this: access to a large number of sophisticated investors and easier compliance rules.
The bulk of Indian startups are funded by venture capital and private equity. After a specified investment cycle, these funds seek to cash in and exit the company by listing it on stock exchanges. While some large companies such as Paytm and Zomato have managed to list in Mumbai, it may not be the best destination for small and mid-level startups.
That's is because few institutional investors in India, such as mutual funds and insurance companies, are willing to bet big on loss-making companies. There is more demand for such companies overseas. Also, to list in India, companies need to fulfill various conditions set by the Securities and Exchange Board of India (Sebi).
These include meeting certain profitability criteria, extensive disclosure of company affairs, and mandatory reservation of some shares for retail investors. Although IFSC is part of India, it is considered an off-shore jurisdiction for many purposes. Foreign funds can invest in GIFT City-listed companies directly in US dollars, thereby reducing
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