Impact
Under the new regulations, public companies are permitted to list on IFSC stock exchanges, unlocking the potential to attract funds from qualified foreign investors. However, this opportunity remains exclusive to public companies, with private companies still excluded from direct listings. Eligible investors, excluding Indian residents, are granted permission to purchase equity shares listed on international exchanges, bringing a new dimension to cross-border investments, whereas the government has emphasised on regulatory approval for eligible investors from countries sharing a border with India. Furthermore, the notification has outlined specific pricing formulae for both listed and unlisted entities, ensuring transparency and fairness in the listing process.
Potential benefits and concerns
The move is anticipated to bring several benefits for both investors and companies. Raising capital in IFSC is expected to streamline compliance-related aspects, reducing the burden associated with various laws and regulations. The International Financial Services Centre Authority will act as a centralised authority, facilitating a more efficient and cost-effective listing process.
Certain issues require clarification for the success of this initiative. There are resident holding restrictions for accessing IFSC, and this move is expected to shift the potential investments from the domestic tariff area to the GIFT IFSC zone to avail various taxation benefits including exemptions on capital gain from the transfer of listed shares. Furthermore, this move challenges the existing tax treatment disparity between Indian retail investors and foreign investors using the Foreign Portfolio Investment route and also increases compliance risks for the ultimate beneficial holder.
Additionally, the extension of the direct listing framework to other global exchanges beyond GIFT IFSC would broaden its scope and depth, making it a more comprehensive platform for international investments.
The road ahead
While the Securities and Exchange Board of India is set to issue operational guidelines for listed public Indian companies, clarity on Ultimate Beneficial Ownership remains a focus area. This significant step aims to integrate Indian capital markets with global counterparts, attracting foreign investors and infusing global best practices, advanced technologies, and access to international markets.
The Indian government’s commitment to creating a conducive environment for foreign investments is further underscored by this notification, positioning IFSC as a promising hub for global investments and acting as a catalyst for its promotion.
As the regulatory landscape evolves, India inches closer to its goal of becoming a preferred destination for both domestic and offshore investors.
(The author Manoj Purohit is Partner & Leader, Financial Services, Tax & Regulatory Services, BDO India. Views are own)
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