GIFT: Tweaking listing norms
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The International Financial Services Centres Authority in GIFT city has taken yet another step forward in making direct listing on the exchanges located in the international financial centre a reality. The IFSCA has sought public comments on the regulatory framework for such issuances. Direct listing, in which a company lists its shares without making a public offer, can find takers among well-established start-ups with a strong brand, which do not need additional funds, but wish to provide exit to their investors, or meet other regulatory requirements.But most start-ups still prefer the traditional public offer route as it includes some fund raising, besides the support of investment bankers. Globally, direct listing forms a very small proportion of the IPO market and is limited to few exchanges such as the Nasdaq and NYSE. The listing process involves lesser scrutiny with the base price of the stock determined by a valuation report prepared by an independent, registered valuer and the pre-open price discovery session determining the equilibrium price at which the stock will list. The regulator ensures investor protection by stipulating that the companies choosing this route have good financial record. The consultation paper has proposed that companies seeking direct listing on the IFSCA should have an operating revenue of at least $20 million and pre-tax profit of at least $1 million in the last financial year, or as an average over the past three financial years.With many start-ups taking over a decade to turn profitable, the requirement to show pre-tax profits could lead to exclusion. On the other hand, the minimum market capitalisation set for the companies at $50 million, which is close to ₹500 crore, is too small. This may not be good enough to attract large institutional investors such as mutual funds, pension funds or sovereign wealth funds. Small market capitalisation can also lead to liquidity issues and price manipulation. Another challenge for companies could be in adhering to the minimum public holding of 10 per cent of market capitalisation. There have been few successful direct listings such as Spotify Technologies which has a market capitalisation of $96.25 billion, Palantir Technologies with market cap of $307.98 billion and Coinbase with market cap of $43 billion. But these issuances have been concentrated in the US. This points to the lack of discerning investors who understand this segment and take the required risk.With the exchanges in the GIFT IFSC still in a nascent stage and trading mainly concentrated in the derivatives of Nifty and Sensex, it may be hard to garner demand at this juncture. With offers that go through, liquidity could pose problems, with most segments of GIFT City exchanges such as the GDRs, currency derivatives or global stocks witnessing scant activity. The GIFT City regulator must increase the pool of investors trading on its exchanges. These investors can participate in other offerings as well.Published on July 29, 2026
