Arguments in favor of the latter indicate that foreign listing would provide access to a larger pool of capital and better valuations, as foreign investors could better understand the nuances of tech startups. This, however, may not always be the case.
The main operational base of a number of well-recognized tech startups is in India. Several startups like Nykaa, MobiKwik, Delhivery and Policybazaar are planning to go public soon, testifying to their expectations of having a name among Indian investors. Zomato, whose recent IPO was 40 times oversubscribed, may be a leader in the Indian market, but its market capitalization of $ 13.1 billion is small compared to global giants like China’s Meituan (valued at $ 220 billion) and the American DoorDash ($ 58 billion). A listing on the US market may not have placed
even in the top 500 stocks by market cap, compromising the relevance of offshore listing.
Take Info Edge and MakeMyTrip. The two were the first to move, but MakeMyTrip chose an overseas list. Therefore, while showing a stable trend over the past 10 years, Info Edge has benefited from being a leader in a still emerging market and its stock has been on the rise since its introduction 15 years ago.
Number of accounts
Brokerage accounts in India have grown five times since 2015 and the mutual fund industry’s assets under management (AUM) is expected to reach a CAGR of 13%. More than 6.9 crore of demat accounts have been opened to date. Indian online trading platform Zerodha handles higher daily trading volume than US-based Robinhood. Active investor accounts have grown dramatically and over 1,500 companies listed on the NSE have seen a substantial jump in retail listings.
The market is growing thanks to the untapped investor base, improved digital infrastructure and increased internet connectivity. According to HSBC’s global research report, Indian internet companies have invested more than $ 60 billion in the past five years, with around $ 12 billion invested in 2020 alone. It predicted the industry will reach 180 billion. billion dollars by 2025.
In July 2021, the stock market helped raise funds for 10 companies to the tune of $ 1.2 trillion for their IPO against their $ 2.47 billion plan. There is no apparent shortage of venture capital funds for Indian startups. In the first six months of 2021, inward private venture capital (PE-VC) investment in India increased 33% year-on-year.
The Indian stock market offers several advantages, including knowledge of compliance procedures and availability of domestic professionals (lawyers, bankers, etc.). These have contributed to a lower transaction cost in India compared to listing overseas.
Chinese technology startups, thanks to IPOs made on American stock exchanges, have been able to access significant capital. However, the US-China “trade war” has hurt them on Wall Street. Listing on foreign markets would also invite double regulation, which adds complexity and exposes companies to uncertainties. Chinese tech giants, for example, have lost an estimated $ 800 billion in market value since February 2021, following a standoff between U.S. and Chinese securities regulators.
When the US administration mandated the Securities and Exchange Commission (SEC) to deregister publicly traded companies that used offshore accounting firms outside of the US regulatory regime, it led to a rush. About 200 Chinese companies were at risk of being delisted from the New York Stock Exchange, as part of a retaliatory measure against China’s new data security law.
The young Indian investor is focused on buying stocks of high growth companies rather than gold and other asset classes. Individual investors increased by 142 lakh in fiscal year 2021. NSE reports an increase in the market share of retail investors in transaction revenue from 33% in 2017 to 45% in 2021 Today, Indian investors are willing to bet on growth opportunities, rather than conventional profit-oriented markers. Startups are one of the main investment sites for pooling their money. If startups are looking for a direct offshore listing, many domestic retail investors may lose their chance to participate in these startups.
A practical solution for startups wishing to tap international markets for their IPOs can be achieved through the simultaneous listing of their shares and certificates of deposit on the US markets. This would allow them to increase their brand awareness and make larger IPO offers due to increased liquidity. It can also provide assessment benchmarks in emerging areas that currently cannot be easily assessed.
Sebi has played a leading role as a liberalizer and catalyst to help boost the startup ecosystem in India. Over time, it has worked to deepen capital markets and relaxed the regulation of investments in startups. He recently announced a number of measures that would make it easier to list startups, and open bid standards have also been relaxed.
Phenomenal growth in the stock market, along with relaxed regulations, access to a huge untapped market, greater investor confidence, and greater predictability are sufficient reasons for the nationwide listing of tech startups in India.