Why Are Indian Tech Companies Not Listed on NASDAQ?

The perception that Indian tech companies are not listed on NASDAQ is a common misconception. Let's unravel the complexities and explore the reasons behind this phenomenon through a structured analysis.

Understanding the Road to IPO

The journey to an Initial Public Offering (IPO) is fraught with challenges, and it typically unfolds in the following stages:

Many startups in India have yet to exit the VC stage. For instance, Flipkart, often touted as one of the largest startups in the country, is still valued at approximately $1 billion. This valuation is insignificant compared to the billion-dollar benchmarks required for a company to be listed on NASDAQ. Alibaba, for instance, is expected to debut at a valuation of around $140 billion.

Foreign Listings and Domestic Exits

Some Indian tech companies have indeed chosen foreign markets for their IPOs. One example is MakeMyTrip, which is listed on NASDAQ. However, the journey to a foreign listing is fraught with complexities and typically involves a much more rigorous and lengthy process compared to a domestic IPO. Companies with significant international investor bases, like Reliance Industries Limited (RIL), Information Technology companies such as Infosys (INFY), and financial institutions like ICICI Bank, choose dual listings for strategic reasons.

The Challenges of Foreign Listings

One of the primary hurdles for Indian companies seeking a foreign listing is the stringent corporate governance and disclosure requirements. These stringent guidelines tend to make foreign listings less attractive for both the promoters and external investors. Additionally, there are regulatory restrictions in place, such as SEBI (Securities and Exchange Board of India) guidelines, which disallow loss-making entities from going public. However, if promoters are eager to secure an exit, they may opt for exchanges with more lenient listing norms.

Valuation Disparities and Investor Attraction

The pre-IPO valuations of Indian tech companies are often lower compared to their Western counterparts. This disparity in valuation is reflected in the disparity in Performance Multiple (PE). For instance, the valuation of IBM versus an Indian company like Infosys showcases a significant gap in PE. If Infosys were to list on the US stock market, it is likely that over time, its market capitalization would drop, similar to what happened with other Indian tech companies that have gone public on US markets.

The US stock market already boasts a plethora of high-quality tech companies. Analysts and investors in the US are well-versed in evaluating these companies, making it challenging for Indian tech companies to attract US retail investors. This trend is furthered by the fact that the US has a more mature and sophisticated investment culture compared to India.

Conclusion

The challenge of achieving a listing on NASDAQ for Indian tech companies is multifaceted. It encompasses issues related to company valuations, regulatory restrictions, and the complex nature of corporate governance. While some Indian tech companies have successfully made their way to foreign markets, the overall trend suggests that listing on NASDAQ remains a difficult feat for many Indian tech firms.

As the Indian startup ecosystem continues to grow and evolve, it is likely that we will see more Indian companies considering both domestic and foreign listings. However, the road ahead will require significant improvements in corporate governance, valuations, and regulatory clarity to overcome the current challenges.