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Listing on Stock Exchange

2023 AUG 3

Preliminary   > Economic Development   >   Indian Economy and Issues   >   Financial market

Why in news?

  • Indian companies will soon be allowed to directly list their securities on overseas exchanges in specified jurisdictions.

About Listing on Stock Exchange:

  • Listing on a stock exchange is the process by which a company’s shares or securities are made available for public trading on the exchange.
  • It allows investors to buy and sell the company’s stock, providing the company with access to capital and visibility in the financial markets.
  • Presently, Indian companies cannot directly list their securities abroad without getting themselves listed in domestic stock exchanges
  • In 2020, the Centre amended the Companies Act, allowing the direct listing of Indian companies on foreign stock exchanges, but a framework has not been put in place so far.
  • Currently, Indian companies can raise money abroad through American Depository Receipts (ADR) and Global Depository Receipts (GDR)
    • ADRs are traded on US stock exchanges while GDRs are traded mostly on European Exchanges and used to raise funds

Indian companies listing on foreign exchanges:

  • The process will involve an initial listing on the International Financial Services Centre (IFSC) in Gandhinagar, followed by permission to list in seven or eight specified overseas jurisdictions.
  • It will help expand capital-access opportunities for businesses in India and attract more overseas investors, ultimately leading to better valuations for Indian companies.

About IFSC:

  • The International Financial Services Centre (IFSC) is a special economic zone in Gandhinagar and caters to customers outside the jurisdiction of the domestic economy. It allows Indian and foreign companies to conduct various financial activities, including offshore banking, insurance, and securities trading, in foreign currencies.
  • The Corporate Debt Market Development Fund (CDMDF) was launched by SEBI to provide stability to the corporate bond market during times of stress.
    • The CDMDF will be supported with 30,000 crore in the form of a guarantee from the National Credit Guarantee Trust Company and over Rs 3,000 crore from the mutual fund industry.

PRACTICE QUESTION:

Consider the following statements:

1. Companies Act prohibits the direct listing of Indian companies on foreign stock exchanges

 

2. Currently, Indian companies can raise money abroad through Global Depository Receipts (GDR)

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Answer