Nasscom seeks direct listing of overseas Indian startups

livemint.com:

Indian startups with externalized structures to list on the domestic markets, said two people aware of the development. Nasscom’s move is significant, given that over 16% of Indian-origin startups are not eligible to access the local markets due to their externalized structures. According to existing rules, only domestically incorporated firms are permitted for listing in India.

Following the global tech valuation downturn, the allure of listing overseas is fading away and a growing number of startups that had initially incorporated outside India, are now eager to tap the thriving domestic liquidity through local listings. For instance, certain startups, like PhonePe, are considering a strategy known as ‘reverse flipping’ to realize the goal. However, this approach has a significant drawback, leading to considerable tax liabilities for both the company and its investors.

In May 2023, Mint reported that Flipkart-backed PhonePe’s decision to domicile in India involved paying $1 billion in taxes. Consequently, other prominent start-ups, such as Razorpay, Pine Labs and Groww might also be contemplating similar moves. Email queries to Sebi, the finance ministry and Nasscom didn’t elicit any response till press time.

“Many tech companies, especially software-as-a-service (SaaS) startups chose the externalization structure for a Nasdaq listing. Besides, some of the private equity investors have a rule that they will invest only in firms that are incorporated in certain jurisdictions," said one of the two people, seeking anonymity. “Creating an externalization structure is far easier than undoing it as it creates several regulatory complications," he added.