To facilitate easier access to global capital for Indian start-ups and firms in the sunrise and technology sectors, the Centre has reduced the mandatory public float threshold to 10% from 25% for companies to be listed in the International Financial Service Centres (IFSCs). The immediate beneficiary would be the Gift City in Gujarat.
“This will particularly benefit Indian companies going global and having ambitions to look at opportunities for expanding their presence in other markets,” the finance ministry said in a statement.
While the lower threshold will encourage more entities to list themselves on the IFSCs, analysts said small floats could be prone to share price manipulations. “While companies consider multiple factors such as liquidity, cost of listing, regulatory environment, etc. this amendment would certainly nudge Companies (both foreign and domestic) to explore the option of listing on stock exchanges located in IFSCs,” said Mayank Arora, Director- Regulatory, Nangia Andersen India.
A smaller float enables firms to retain control of their companies while attracting public foreign capital, said Mohit Chaudhary, Managing Partner Kings & Alliance LLP.
“On negative side a reduction in public float would render smaller number of shares available to the public, which can have a number of implications for a stock, including: Volatility, where smaller float stocks are more volatile as even a single trade would cause greater impact on the price,” Chaudhary said.
Institutional investors, insurance companies, mutual funds, pension funds avoid trading in companies with smaller floats, he said. Similarly, smaller float can be more vulnerable to pump-and-dump schemes because of their susceptibility to price manipulation.
The market considers companies with higher float shares to have better governance standards since the promoter has lesser influence and other shareholders have more power to exercise their rights.
The ministry of finance has amended the Securities Contracts Regulation Rules (SCRR), 1956 in to ease the listing requirements of bourses in IFSCs, which are deemed foreign jurisdictions. As per the amendment, companies desiring to list their securities solely on a recognized stock exchange in an IFSC are required to always maintain at least 10% public shareholding. The threshold is 25% for companies listed in the domestic stock exchanges (non-IFSC).
‘Direct Listing of Equity Shares of Companies Incorporated in India on International Exchanges Scheme’ under the Foreign Exchange Management (Non-Debt Instruments), 2019 and Companies (Listing of Equity Shares in Permissible Jurisdictions) Rules, 2024 together, provide an overarching regulatory framework to enable public Indian companies to issue and list their shares in permitted international stock exchanges at the Gift City.