Can Indian firms list in American markets?

4.6

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Through the previous chapters of this module, we’ve managed to cover the U.S. markets as much as possible. However, we’ve left something important for the end. And that’s what we’re going to be looking at now. 

In this chapter, we’re going to delve into something that many novice investors might not have even dreamt of - Indian firms listing themselves on the U.S. markets. If you’re wondering whether Indian companies can actually do so, then read on to find out more. 

Listing of Indian firms in the U.S. markets: The current scenario

The answer to the question ‘Can Indian firms list on the U.S. markets?’ is both a yes and a no. Confused? Don’t worry, we’ll clear it up for you in some time. 

As of now, Indian companies can list their debt securities on international exchanges without any restrictions. But when it comes to equity shares, they cannot list them directly on U.S. exchanges like they do in the domestic circuit.

Instead, they would have to first list their shares on Indian bourses - the NSE and BSE. Only once they’re listed in the Indian stock markets are they permitted to even approach foreign markets. This is how Infosys, ICICI Bank, and other Indian companies have managed to get listed in the American stock exchanges. Since these companies already had their shares listed on Indian stock exchanges, they were able to approach the U.S. stock markets and have their shares listed there as well.  

Now, this is where things get interesting. Indian companies wanting to list their shares in the U.S. stock exchanges would have to issue them in the form of depository receipts. You must be wondering what depository receipts are, right? A depositary receipt (DR) is a kind of negotiable certificate that is issued by a bank. It represents the shares in a foreign company traded on a local stock exchange. Depositary receipts give investors the opportunity to hold shares in foreign countries and offer an alternative to trading on an international market.

There are two types of depository receipts that we need to look at here.

  • American Depository Receipt (ADR) 
  • Global Depository Receipt (GDR) 

Let’s take a look at what an American Depository Receipt (ADR) and a Global Depository Receipt (GDR) are.  

What are ADRs and GDRs?

If a company is looking to raise funds by issuing its shares in a foreign country, it cannot do so on its own. Instead, the company has to go through an intermediary depository bank. This intermediary is responsible for issuance of the company’s shares. The responsibility of administration and management of these depository receipts also rests with the intermediary depository bank and not the company.  

Coming back to the topic of American Depository Receipts (ADRs), they are basically shares of a foreign company that are issued in the U.S. through an intermediary depository bank. 

Similarly, Global Depository Receipts (GDRs) are the shares of a foreign company that are issued in multiple different foreign countries through an intermediary depository bank, hence the name ‘Global.’  

 Listing of Indian firms in the U.S. markets: What does the future hold?

If an Indian company has already listed its shares in the domestic markets, the path is quite clear and well-set for them for listing their shares in the American markets. On the other hand, if an Indian company hasn’t listed its shares here, then within the framework of the current regulations, it cannot approach a foreign country for listing.   

That said, the second category of companies - that is, those that are not listed in India - could see some light at the end of the tunnel after all. Recently, the Indian government, in consultation with the Securities and Exchange Board of India (SEBI), has amended various existing rules and regulations to permit Indian companies to list directly in overseas markets. 

That’s not all. A clear framework for the same is also being drafted by the Ministry of Corporate Affairs, the Ministry of Finance, the SEBI, and the RBI. Once that comes to fruition, we can expect Indian companies to be able to directly list their shares in overseas markets like the U.S. without having to go through the domestic listing process at all.  

Wrapping up

With this, we’ve come to the end of another chapter in Smart Money. In the last and final chapter, we’ll wrap up this module by going over 5 most important things that you should always keep in mind when investing in the American stock markets. 

A quick recap

  • As of now, Indian companies can list their debt securities on international exchanges without any restrictions. 
  • But when it comes to equity shares, they cannot list them directly on U.S. exchanges like they do in the domestic circuit. 
  • Only once they’re listed in the Indian stock markets are they permitted to even approach foreign markets. 
  • Indian companies wanting to list their shares in the U.S. stock exchanges would have to issue them in the form of depository receipts.
  • There are two types of depository receipts that are relevant here: American Depository Receipt (ADR) and Global Depository Receipt (GDR).
  • American Depository Receipts (ADRs) are basically shares of a foreign company that are issued in the U.S. through an intermediary depository bank. 
  • Global Depository Receipts (GDRs) are the shares of a foreign company that are issued in multiple different foreign countries through an intermediary depository bank, hence the name ‘Global.’  
  • If an Indian company has already listed its shares in the domestic markets, the path is quite clear and well-set for them for listing their shares in the American markets. 
  • On the other hand, if an Indian company hasn’t listed its shares here, then within the framework of the current regulations, it cannot approach a foreign country for listing.   
  • That said, the second category of companies - that is, those that are not listed in India - could see some light at the end of the tunnel after all. 
  • Recently, the Indian government, in consultation with the Securities and Exchange Board of India (SEBI), has amended various existing rules and regulations to permit Indian companies to list directly in overseas markets.
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