Indian equity internationalization via GIFT IFSC has the potential to revolutionize the market

Indian equity internationalization via GIFT IFSC has the potential to revolutionize the market

Indian equity internationalization via GIFT IFSC has the potential to revolutionize the market

The ability to issue securities on foreign exchanges approved by GIFT IFSC has satisfied the long-standing need of Indian entrepreneurs and businesses seeking to access the global capital pool. The contact with tax authorities and currency conversion friction are two grievances of foreign investors that are also addressed by this globalization of Indian shares.

The tax treatment is at a level never seen before and will make equities listed on GIFT IFSC marketplaces more appealing.

The Union Finance Minister's 2020 Self-reliant India campaign launched the long-awaited change that permits Indian public businesses to directly list their securities in approved foreign jurisdictions. Indian startups and businesses have long sought this in order to access the world's financial markets and boost share liquidity.

On January 24, 2024, the Ministries of Finance and Corporate Affairs announced two significant changes to the Companies Act of 2013 and the Foreign Exchange Management Act (FEMA) to enable this reform. With the help of this reform, Indian public companies—including those that are not publicly traded—will be able to sell their securities on approved foreign exchanges, such as the NSE International Exchange and India International Exchange at the GIFT International Financial Services Center (GIFT International).

Red carpet treatment for international investors

The globalization of Indian stocks, which addresses two major issues, is one of its main advantages:

1. Communication with Indian officials

2. Friction in currency conversion

Even with the developments throughout time, many foreign investors still find investing in Indian shares to be a difficult procedure. Before making an investment, a few prerequisites must be met. The need to get a PAN (Indian Tax ID) is a crucial criterion. Due to the unmatched global image of Indian tax authorities, investors are becoming less willing to apply for PANs and expose themselves to Indian tax officials.

This view is firmly ingrained among many international compliance experts, who have significant influence over investors, even if it is untrue. The GIFT IFSC resolved this issue by doing away with PAN's participation requirement in that jurisdiction, despite the fact that this is gradually changing.

Moreover, investors are exempt from filing tax returns in India if their only source of income is from GIFT IFSC investments. The tax break for revenues from trading in GIFT IFSC is the cherry on top. Unprecedented in recent memory, this degree of tax relief will increase the allure of stocks listed on GIFT IFSC markets.

Accounting and asset allocation will also be considerably simpler with the option to purchase and sell in US dollars. Because GIFT IFSC does not have the return drag that comes with converting foreign currencies into Indian Rupees, it can compete with other international financial hubs.

The tracking inaccuracy between Indian stocks and ADR/GDR is also eliminated by direct listing. Securities known as "depository receipts," which are traded on stock exchanges such as NASDAQ, NYSE, and others, are backed by underlying equity. There are tracking inaccuracies as a consequence of this arrangement between the equity value and the depository receipt. Direct listing enables direct involvement by getting around this structure.

The Gateway to Global Indian Equity is GIFT IFSC.

The idea of GIFT IFSC, an international financial center, is to draw in foreign investment. Therefore, it stands to reason that, in accordance with FEMA, Indian citizens are not permitted to take part in listings in the GIFT IFSC.

This involves a shift in the way Indian businesses approach the worldwide market via GIFT IFSC and India, as well as the home market via India. To those who follow the global narrative, listing in India and GIFT IFSC is not mandatory. An Indian business may pick the listing jurisdiction it wants to use and choose which investors to approach.

While it is a step in the right direction, Indian businesses did not anticipate a straight international listing to occur in this manner. Future expansion of foreign jurisdictions is permitted under the FEMA framework, which opens the possibility of direct listing on markets such as NASDAQ, NYSE, LSE, and others.

After using these exchanges overseas, a large number of Indian companies are now interested in coming back to their own country to use local exchanges.

Mumbai serves as the entry point to India, while GIFT IFSC will soon be the entry point for international Indian equities.