Globalising India Inc

Indian cos should indeed be allowed foreign listings

The Securities and Exchange Board of India-appointed committee to examine the listing requirements for Indian and foreign companies in various stock exchanges has now submitted its report. The committee recommends that Indian companies be allowed to list on overseas exchanges — without, that is, a requirement to also list in the domestic markets — and that companies domiciled abroad be in turn permitted to list on Indian stock exchanges. This is a welcome move, and one that has been in discussion for some time. The committee’s report is unequivocal in arguing for the change, and its arguments deserve to be given a careful hearing.

The question is what benefits will be available to Indian companies from the ability to list on foreign exchanges. Clearly, the expansion of choices as to where and how to list their shares increases efficiency in the capital market open to companies in India. In particular, it will allow them to access funds at a significantly lower rate than they otherwise might have. Currently, they are allowed to raise debt abroad — the so-called masala bonds being just one example — but equity is a different proposition. The Indian equity markets are not particularly short of liquidity at the moment, but there may come a time in the future when it will be of significant benefit to companies to be able to list on stock exchanges overseas if necessary, allowing them to tap under-utilised funds in other jurisdictions. Some large institutional investors are not permitted by their governing regulations to invest in companies listed outside their home economies, and this will open the door to tapping them as sources of equity for Indian companies. It is also true that, as the committee points out, this will increase competition for Indian stock exchanges and thereby render them more efficient. Deeper equity markets would also allow more accurate price discovery, and thereby ensure that companies are better valued — with benefits all round.

Meanwhile, the possibility that companies domiciled abroad could list in India would help in several ways. For example, many companies that operate in India are currently domiciled in countries such as Singapore; but by being listed on Indian stock exchanges, they could benefit from the pool of investors and funds that are best informed about their operations and their operating environment. It would also allow for the creation of a globalised and world-class financial services industry that could create the capacity to analyse and trade in companies from all over the world. In this context, therefore, the objections to such a move do not seem as weighty. It has been argued, for example, that this would lead to an exodus of Indian companies from the Indian markets. This would only be the case insofar as there are problematic valuations being achieved for those companies domestically. In other words, even this objection reveals that this change would, in fact, fix a possible gap in the efficient functioning of markets. Broadly speaking this move will likely improve the Indian financial ecosystem and transform the way that Indian companies go about participating in the global economy.