Sebi takes the lead in drawing new generation companies to Indian markets
* Inmobi is among the most valuable companies born in India but is planning a US listing.
* Makemytrip is listed in the US.
* Flipkart is operating in India but is domiciled in Singapore and planning a US listing.
* Cleartrip is working on a plan to list in US or Singapore
These are multi-billion or multi-million dollar companies. All these Newgen companies are Indian in terms of where the value has been created, the market they operate, their founders and core teams. How it is that none of them are considering listing in India or allowing Indians to participate in the wealth they create? This is the context in which Sebi has developed new rules to encourage such companies to list in India.
Newgen companies are dominating the markets in US and China… The value of some of the top listed product companies like Apple, Google, Facebook, Microsoft and of those which are yet to be listed like Airbnb, Uber are huge today. We are seeing a phenomenon where the maximum value creation is through these technology, network-enabled global giants and their value today is surpassing the traditional manufacturing and services, including IT services. The US markets are already dominated by the technology companies, which have the highest sector growth rate in market capitalisation and the highest PE—an indication that they will dominate the markets more. We have seen Uber creating value far more than Avis or Hertz, and Airbnb much more than all the hotel chains put together. It is clear these Newgen companies are the future as they have scalability, value creation and rapid growth. Similarly, in China, the Alibabas, Tencents and Baidus are all worth more than $50 billion and are dominating their markets.
…whereas Indian Newgen companies are flocking elsewhere to list: If we look at the Indian stock markets they are dominated by the traditional businesses and we are yet to see companies of the type mentioned above. Going forward as these companies start dominating global markets and indices, India will find that its most valuable companies are listed outside and Indian markets could potentially lose value as these companies dominate the world.
US is making it easier for these companies to list with lighter rules: US stock markets are considered the toughest in terms of regulations, and the cost of compliance is very high and punishing. They have realised that they need to encourage these companies to list in the US and also encourage newer ideas like crowdfunding. In the past few months the US has made several changes to regulations to make them lighter for certain categories of firms and also enable crowdfunding.
Rules make it impossible for Newgen companies to list: Indian markets have been dominated by traditional companies and the regulations here are based on the traditional concepts of promoter, lock-in, protecting the minority shareholder and the like, which are all reactive to (mal) practices seen in the market from time to time. None of the Newgen firms would qualify to list by extant guidelines here.
In this scenario, the Securities and Exchange Board of India has come out with new guidelines to create a separate platform, called the Institutional Trading Platform, to enable Newgen companies to consider listing in India, starting a “List In India” drive, in line with the Prime Minister’s “Make In India” initiative. The guidelines recognise that Newgen firms have some essential differences with the tradi- tional companies. They are typically founded (not promoted) by first generation technology savvy youngsters, funded primarily by angel investors and venture capitalists, high on governance, willingness to share wealth with their teams (large ESOP pools), active on M&A, focus on growth and may not be profitable, etc.
Keeping these factors in mind the new ITP guidelines are designed to encourage Newgen firms to consider listing in India. At the same time, Sebi has recognised that the small investor may not appreciate or understand the risks and rewards of this segment, hence, have created a separate segment where the minimum investment is R10 lakh and higher minimum trading lot so that only high net worth individuals who can understand the risks participate in this market.
Sebi is among the early agencies globally to move in this new direction, and it is hoped that other facilitators like the Reserve Bank of India, ministries of corporate affairs and finance follow the Sebi lead to ensure that India does not miss the bus and Sebi’s pioneering action is not wasted.
The author is partner, India Leadership Team, Grant Thornton India LLP. Views are personal