GIFT-IFSC exchanges: ET Explainer: How startups can benefit from listing on GIFT-IFSC exchanges

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On Wednesday, the Indian government issued a notification allowing domestic public companies to list directly on global exchanges at the International Financial Services Centre (IFSC) in Gujarat’s GIFT City. This was a long-standing demand by large Indian companies wanting to access foreign capital.

Here’s a look into how this impacts Indian startups and investors.

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What has changed?

The new framework allows unlisted and listed public companies to list their shares on the two bourses operating in GIFT City – India International Exchange and NSE International Exchange. The Securities and Exchange Board of India (Sebi) is in the process of formulating operational guidelines, after which these companies will be able to list their shares directly on these bourses.

How will it work?

Foreign investors operating from IFSC in GIFT City will be able to buy and sell shares of companies that list on either the India International Exchange or NSE International Exchange. However, for investors from countries sharing a land border with India, including China, investments will be allowed only after prior approval from the government.

Further, the rules prohibit Indian residents from trading shares on the stock exchange in GIFT City. Within the investor community, there is also an expectation that listing on GIFT City’s international exchanges could accelerate reverse flipping — startups with primary operations within India shifting their domicile from foreign countries to India.

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How does it benefit Indian startups?

Startups looking to access foreign capital will be able to raise money in Indian rupees as well as global currencies. “This can boost the valuation of Indian companies and make them more competitive and scalable globally. Indian public companies can now choose to raise funds from both local markets in INR and foreign markets at IFSC in foreign currency, supporting their global aspirations,” Tushar Sachade, partner, Price Waterhouse & Co, said.

So far, global investment banks including JP Morgan, Deutsche Bank and Japan’s Mitsubishi UFJ Financial Group have opened their units in GIFT City. This would also provide a new option for Indian companies to access overseas markets. Currently, companies including Infosys, Tata Motors and Wipro have issued American Depository Receipts (ADRs), which are certificates representing shares in a company for trade on American stock exchanges. These certificates are issued by US banks.

What’s in it for investors?

For investors looking to pick up stakes in Indian companies, the new framework offers significant tax savings. This is because capital gains arising out of transfer of equity shares of companies listed on the IFSC exchanges are exempted from tax.

“Foreign investors can also benefit from this scheme, as they can invest in the growth of Indian companies and expect high returns. GIFT-IFSC’s robust and investor-friendly regulatory framework enables transactions on stock exchanges in foreign currency, reducing currency risk and offering a secure and attractive investment climate,” PWC’s Sachade said.

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