In December 2018, the Securities and Exchange Board of India’s (SEBI) Expert Committee for the Listing of Equity Shares of Companies Incorporated in India on Foreign Stock Exchanges and of Companies Incorporated Outside India on Indian Stock Exchanges wrote in its report:
“The fast-growing liberalised Indian economy is anchored on the principles of transparency and ease of doing business promoted by Government of India. This has provided a boost to foreign corporates to actively participate in the growth of the Indian economy and compete with established as well as new companies incorporated in India. This may, therefore, be an opportune time to consider further liberalising the equity capital raising framework by allowing companies incorporated outside India the opportunity to access the vibrant Indian equity capital markets. At the same time, it is also an opportune time to enable companies incorporated in India to directly access the global equity capital markets.”
What was considered opportune in 2018 is even more so today, more than six years after the SEBI report was published and accepted by the Government of India. India’s equity markets have now attained global standards, depth and heft. Fuelled by increasingly larger portions of people’s savings flowing into the equity market through mutual, insurance and pension funds and directly, and the growing interest of foreign investors, India’s overall market capitalisation crossed the $5trn mark in 2024. Last year, India became the world’s leading market for IPOs, the world’s largest equity derivatives market by volume, and the world’s second largest in terms of equity capital market activity and fund raising. Additionally, India is now the world’s fifth largest economy with a GDP of $4.27trn and is expected to become the world’s third largest economy by the end of the decade.
All these qualities have now brought India’s equity market to a position where it should attract the attention of international issuers of equity, particularly those that operate in India. The authors of this report envision a near-future when international companies will be considering India as a capital pool of global scale and issuing equity securities to Indian investors as a means of accessing this valuable pool.
There are some in India who assert that India’s well developed equity markets with its rich valuations, large domestic and foreign investor base, and a market depth that can accommodate billions of dollars plus capital raisings, are adequate for Indian companies, and that they don’t need to seek funding or investors outside the country. However, India’s insatiable appetite for capital to fund its infrastructure, fight climate change, grow its manufacturing base and generate skilled employment opportunities, as well as the global ambitions of its companies, belie that theory.
Ambitious Indian companies seeking to establish a global footprint may seek an overseas equity listing not just to access equity capital beyond what is available through the Foreign Portfolio Investors/Foreign Direct Investment (FPI/FDI) and private equity routes, but also to broaden their investor base, seek specialist investors, and more patient and permanent capital than that available through private equity, enable overseas mergers and acquisitions, and incentivise their increasingly international employee bases. The same applies in reverse for foreign companies and investment funds looking to India. Equity share listings by such companies and investment funds will internationalise India’s National Stock Exchange (NSE) and Bombay Stock Exchange (BSE), making them global stock exchanges and allow Indian investors to diversify their equity investments into quality international stocks without drawing down on their individual foreign exchange quotas through the Liberalised Remittance Scheme (LRS). An additional benefit for India is that an equity cross listing link will enable companies that have established overseas domiciles and stock exchange listings to attain an Indian or ‘home’ listing as well.
Since the mid 1990’s, listed Indian companies have been able to access international equity markets by issuing Depositary Receipts (DRs), and many have done so by issuing and listing DRs in London, Luxembourg and New York. However, this method is no longer considered optimal by issuers or investors and there have been virtually no issuances of DRs by Indian companies in the last 10 years or so. In the other direction, India had implemented an Indian Depositary Receipts (IDR) policy for overseas companies. This route was used by only one international company, thus the experience was not considered successful and interest in IDRs have since faded away. Therefore, it is the belief of the IUKFP Equity Capital Market Connectivity Working Group that ordinary equity shares offer a simpler, cost-effective issuer and investor friendly alternative to DRs for equity funding in both directions.
Since the publication of the SEBI Expert Group’s Report on Cross Border Equity Share Listings in 2018, India has taken several regulatory and policy steps to enable overseas equity listings. In October 2023, the Indian Companies Act 2013 was amended for public companies to issue such class of securities to be listed on a permitted stock exchanges in a ‘permissible foreign jurisdiction’. In July 2023, the Union Minister for Finance and Corporate Affairs announced that direct listings of Indian Companies at GIFT-IFSC exchanges in the first phase would be enabled. Subsequently, on 24 January 2024, the Department of Economic Affairs (DEA), Ministry of Finance, amended the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, and notified the ‘Direct Listing of Equity Shares of Companies Incorporated in India on International Exchanges Scheme’. Simultaneously, the Ministry of Corporate Affairs (MCA) issued the Companies (Listing of Equity Shares in Permissible Jurisdictions) Rules, 2024 and notified IFSC-Gift City and its two international exchanges owned by NSE and BSE as the first permitted jurisdiction and stock exchanges. These changes collectively, provide an overarching regulatory framework to enable public Indian companies to issue and list their shares in permitted international exchanges.
Meanwhile in the UK, the Financial Conduct Authority (FCA) concluded its Primary Markets Effectiveness Review and introduced improved eligibility criteria, rules and disclosure requirements for a new consolidated Main Market of the London Stock Exchange. The new Main Market also has a new ‘International Secondary Listing’ category, aimed at attracting dual listings from overseas companies with appropriate regulation so that an overseas company choosing a secondary listing in this category should not have a materially higher regulatory burden than it has on its primary exchange. This new segment has already admitted secondary listings from companies with primary listings in Hong Kong and the United States.
The above policy developments in India and the UK dovetail well for the establishment of a seamless India–UK Equity Connection Arrangement. The IUKFP Working Group believes that by initiating this arrangement with equity share cross listings by already listed companies in both markets, the growth ambitions and equity strategies of India and UK-based companies can be met without affecting the growth, prospects and further development of either country’s equity markets. The pioneering policy, groundwork and infrastructure that will be laid down for an India-UK equity cross listing arrangement will also serve as a template for similar arrangements with other global markets. And in the future, this can also serve as the base-case arrangement for Initial Public Offers (IPOs) by unlisted and private companies in either market.
However, some additional policy changes must be made, and a few obstacles overcome in order to implement a smooth and functional equity cross listing arrangement and these are detailed in the full report.
