India to freeze listing of domestic companies overseas

In the business of government, things can change pretty fast. Just about a few months back, India had been talking aggressively about catalysing international listing of Indian companies.

This included allowing Indian companies to list abroad through the SPAC route. Now, it looks like the Government of India has frozen plans to permit local companies to list overseas and it will now prefer to bolster its own capital markets.

In the last few years, there has been hectic lobbying by global brokerages and stock exchanges to enable Indian companies to directly list abroad. This freeze will be a sort of setback to foreign funds and international stock exchanges which were actively seeking to tap into India’s digital and technology boom.

This is a sudden policy reversal after the government had earlier indicated that new overseas listing rules would be out in Feb-22.

The ostensible reason given for this decision is that the plan has been put on hold due to sufficient depth in Indian capital markets. Apparently, there appears to be more to the story.

Possibly, the recent war in Ukraine and the sanctions on Russia have made India wary of making Indian capital too dependent on the vagaries of American policy. That would have bene too much of a risk. Finance ministry has not confirmed any reason for the move.

In the last one year, a slew of homegrown digital names like Zomato, CarTrade, Paytm, Policybazaar and Nykaa adopted the IPO route. While the post listing performance may have been disappointing, one thing is clear that there is domestic appetite.

For instance issues like Nykaa and Zomato were heavily oversubscribed despite rich valuations. That has perhaps given government confidence that a global listing may not add much value.

In the year 2021 alone, more than 60 companies made their market debut in India and raised over $15 billion. That is more money raised through IPOs than the previous 3 years combined.
 

That has apparently given the government confidence that it is possible to work on the Indian markets. Of course, many digital IPO plans like Delhivery, OYO Rooms, PharmEasy and Droom have been delayed despite getting the approval for IPO from SEBI.

In the past, several global venture capital firms and PE firms had lobbied with the government to allow Indian companies to list abroad for better valuations.

This demand is likely to come back, especially after Paytm cracked 75% from its issue price and continues to plummet, despite having a marquee set of investors and an incomparable customer data franchise. Tiger and Sequoia have been among the key lobbyists for this permission.

In a way, the last few months has been a kind of return to reality for technology stocks. Some of the listed digital stocks must be ruing listing their stocks on the bourses as they lost out on the valuation game.

Zomato losing out on valuations to Swiggy, post listing, is a classic case in point. The big success stories were Zomato which listed at 66% premium and Nykaa at 96% premium. However, both have lost substantial value since then.

One argument in favour of global listings has been the better access to liquidity and capital. However, Indian policymakers are divided. One factor could be the US markets almost holding the Chinese listed stocks to ransom.

Similarly, any arbitrary US action like sanctions could have a larger impacted on such globally listed stocks. Also, Indian investors tend to find it hard to trade in Indian stocks that are listed abroad. 

In a way, the Swadeshi Jagran Manch, a brainchild of Guru Murthy has been the big spoke in the wheel of this plan. However, there has been a demand from PE funds and also from digital companies to be allowed to be listed abroad. It would be interesting to see how this side of regulation evolves.