Aditi Shah, Aftab Ahmed and Aditya Karra

NEW DELHI (Reuters India) – India has stopped plans for local firms to be allowed to list in foreign capital markets as it seeks a boost to its own capital markets. Officials and sources within the industry said that this is a setback to international funds and stock exchanges trying to capitalize on India’s growing tech sector.

New Delhi’s sudden policy change comes after officials had said that new rules regarding overseas listing would be published in February last year.

Three top government officials who had direct knowledge of this decision said to Reuters that India believed there was enough capital in India for companies to raise capital and obtain good valuations. The move was not made public so they declined to identify themselves.

India’s finance minister did not respond when asked.

Indian equity markets are booming as enthusiastic retail investors, a flood of easy cash and pandemic-induced flooding of money have pushed prices up to new records. This has encouraged a number of Indian tech entrepreneurs to get local in their initial public offerings.

In India, more than 60 companies launched their markets in 2021. They raised more than $13.7 million which is more than all the other years. Indian stock markets have suffered from the Russian invasion of Ukraine and volatility, which has delayed plans for an IPO.

The outlook on such listing fell after Paytm digital payments app, which is backed China’s Alibaba (NYSE:), Ant, and Japan’s Softbank were both plunged upon its November debut raising doubts about the valuations. Its stock price has fallen 75% since its initial issue.

Reuters reported that even before Paytm collapse, U.S. Venture Capitalists like Sequoia Capital and Tiger Global had lobbied for Prime Minister NarendraModi to permit Indian companies to list overseas to obtain better valuations.

The overseas listing rules are now in “limbo,” according to a second official from the government. Both the officials pointed out Zomato’s debut on the stock exchange, which had a high valuation and contributed to their new outlook.

Zomato became public in July on Mumbai’s stock exchange. It was 38 times more popular than its original offer and the stock price soared 66%. Nykaa Indian cosmetics-to fashion platform Nykaa saw an increase of 96% upon its launch, reaching a valuation close to $14 billion.

They have both lost much of the gains they made in recent months.

According to two industry sources, government officials informed them that the plan had been put on hold. This is a blow for New York and London exchanges, who had been trying for a piece of India’s fast-growing start-up market.

LOBBYING

International investors are pushing for India’s approval of overseas listing. They claim that foreign markets will give Indian businesses better liquidity and capital access. This idea has been considered since at least 2020 and has been deeply divided by Indian policy makers.

Swadeshi Jagran Manch (the economic wing, ideological parent to Modi) opposed the plan. It claimed that such listing would result in less Indian oversight for domestic businesses, while Indian investors will find it harder to trade shares listed abroad.

Despite strong lobbying for the change, India’s Revenue Secretary stated that in August 2012 overseas listing rules might be made public by February.

According to Reuters, a source close to the situation told Reuters that Swadeshi jagran Manch representatives lobbied India’s finance minister in a January closed-door meeting. They wanted him not continue with the policy announcement.

Although the group has been widely regarded as having a strong influence over India’s policy-making, it’s not known if this particular meeting was a contributing factor to the decision of the government.

A senior executive in the industry who lobbied New Delhi for foreign listing allowed said that it could lead to pressure from Indian companies for more changes.

According to the executive, “Some funds could want Indian companies registered outside the country.” He also said that this move might allow them to be more readily listed overseas.