Why Listing At Nasdaq May Not Be A Good Idea For Indian Companies The lawsuit filed against India-born Saas startup Freshworks has thrown open the debate on whether Indian corporates should list on foreign bourses and operate out of a foreign land.

The lawsuit filed against India-born Saas startup Freshworks has thrown open the debate on whether Indian corporates should list on foreign bourses and operate out of a foreign land. Freshworks is facing a class action lawsuit in a California district court for allegedly providing misleading offering documents ahead of the firm's listing on the Nasdaq stock exchange in September 2021. The shares of Freshworks, which surged in its trading debut on Nasdaq, at around $46, a 28% gain over its IPO price of $36, have plummeted significantly. At the time of writing this story, the shares of Freshworks were trading at $13.55 a piece.

Co-founded by Girish Mathrubootham and Shan Krishnasamy in 2010 in Chennai, the company shifted its headquarters to San Mateo in the US. However, it continued to have a large workforce in India, catering to a large customer base globally. With the listing, it became the first India-born Saas startup to trade on the US exchange. Infosys, Wipro, Dr Reddy's and HDFC Bank are some of the other Indian companies that are listed on the US exchanges as ADRs.

So, what is it that makes Indian corporations establish headquarters abroad and be listed there? Is it an easier operating environment, glamour of customers getting attracted or the expectation that they will be able to raise more capital and do better than India? Isn't headquarters back home helps in better navigation of regulations in case a corporation finds itself in troubled waters?

In a Linkedin post, Rehar Yar Khan, Managing Partner, Orios Ventures says "All regulatory business environments are equally challenging. Each has its pros and cons. For example each US state has its own taxes and those working cross state need to file in multiple states. For founders who are from India, they understand India and are in a better position to navigate the regulations here.

Concurs Gopal Agrawal, MD & Head, Investment Banking, Edelweiss Financial services, "Indian corporations have a better understanding or knowledge sitting in their own country as against any different geography. But if you are expected to do something which you are not doing, you would face repercussions from the regulator whether in India or outside India."

Also the listing at foreign bourses, once seemed to hold a prestigious position for an Indian company, is no longer the case now. Writes Khan, in his Linkedin post:

The capital availability is high in India, there are many domestic and overseas funds operating here. Debt is also highly accessible There is no need to incorporate overseas to access capital. Also, IPOs in India can happen at lower toplines than in the US. Even at $300 ARR a US SaaS company, valued at between $2 and $3B is a small cap and will struggle for a great IPO reception and subsequent coverage. That is because the markets there are very large. In India a $50M to $100M top line company can expect a good reception and good continuation coverage on the public markets.

His views are echoed by Agrawal, who says, "The depth of Indian markets is decent enough now for people to look at listings in India rather than the US. In fact, the trend is changing in favor of companies willing to list in India. A lot of large IPOs are happening in India and they have got good responses. People should look at listings in India from a depth perspective and also from investors' perspective who understand IT space. Earlier, the perception was I am into the IT space, so the US is the only market that would understand what I am doing. There are enough examples of IPOs where people have listed in India and grown in terms of market valuations."

Says Pranav Haldea, MD, Prime Database, "Companies used to get listed on Nasdaq or outside India because they felt they would get access to a much wider pool of investors. However, that is no longer the case as pretty much all the large global investors have access to and now invest in Indian market."

Also, till sometime back, companies used to reason that investors overseas can understand their company much better and give them higher multiples, but this argument seems to be fading away too. Says Haldea, "We saw this coming to light in the last one year with all the new age tech companies getting listed. The kind of response these companies saw despite the seemingly high valuations has put this argument to bed. How they have performed post listing, of course, is another story altogether."

What about the argument that customers get more attracted to locally incorporated companies? "Possibly, but this does not require the head office to be incorporated in that country. One can open a branch office or a subsidiary. Think of all the overseas software companies that sell in India, they have branch offices here and the smaller ones don't have an office at all, yet we buy their software if we like them," opines Khan in his post.

Haldea states that another reason attributable to listing on foreign exchanges is if a company derives major revenues from a particular geography. While at the same time, you have the Indian IT companies which are all listed domestically, despite having most of their clients located outside India. So, there are pros and cons to both sides of it and every company should take a call looking at its own circumstances."

However, according to Nilesh Shah, MD, Kotak Mahindra mutual fund, a company should list where it can get best value from the quantum of money, quality of investors, and valuation. "Let there be competition between NSE and Nasdaq and let the best market win."

But it's not just the US that seems to have attracted Indian companies, increasingly Singapore too has become a favourite destination for Indian companies like Mobikon and InMobi to register themselves there.