KOLKATA - The New York Stock Exchange (NYSE) and
Nasdaq, encouraged by a booming Indian economy, a new
United States law that encourages retail investments in
stock markets and a surge of foreign investment into
India's stock market, are eyeing India for listing
opportunities.
While Nasdaq already has a
director-level officer permanently stationed in the
country to promote the exchange in India and Southeast
Asia, top officials of the NYSE, New York's so-called
"Big Board", recently started touring India in an effort
to increase the listings of Indian companies in the US.
Both are also vying for a larger share of the pie.
"We are expecting at least 10 Indian companies
to be listed on the US bourses in the next year or so,"
says Ghanshyam Dass, the Bangalore-based director of
South Asia for Nasdaq. "We are in discussions with a
number of Indian companies and the appetite for Indian
companies in the US remains very strong."
In the
last week of November, Bryant Seaman, international
group executive vice president at the NYSE, visited New
Delhi and Mumbai to seek to entice Indian companies to
opt for NYSE listings.
"In India, we are talking
to many companies, both private and the divestment
candidates. We are also looking at those companies which
are looking to move from global depositary receipts to
American depositary receipts," Seaman said, adding that
he is also telling India companies that a listing on the
NYSE not only raises money and the profile of a company
globally but also promotes their services and products
in the US.
Currently, 10 Indian companies are
listed on the US exchanges, three on Nasdaq. They are
Infosys Technologies, Satyam (Sify) Infoway and
Rediff.com. Seven are listed on the big board - HDFC
Bank, ICICI Bank, Satyam Computers, Wipro, VSNL, MTNL
and Dr Reddy's.
Indeed, for both Nasdaq and the
NYSE, India for various reasons has suddenly emerged as
a ripe market for increasing business. Burgeoning
economic growth has led to spectacular performance by
its corporate sector, which has led booming stock
markets and highest-ever foreign investment inflows in a
single year.
But most importantly, while the
rest of Asia cashed in on the appetite among foreign
investors for Asian equities following the 2003 global
stock market boom, Indian companies missed the bus,
accounting for a minuscule portion of the US$7.2 billion
that companies in the region have raised in 2003 by way
of American Depository Receipts (ADR) and Global
Depository Receipts (GDR).
Asian companies were
also the most active in the ADR/GDR markets this year.
Of the 23 ADR/GDR deals this year, 19 were out of Asia.
Of this, Taiwan accounted for 15, South Korea and India
for the other four. In previous years, ADR issuances out
of Asia averaged only $2 billion to $3 billion. In value
terms, almost 99 percent of the total amount mobilized
was during May and November. Taiwan accounted for 91
percent of the $7.2 billion while Korea accounted for 4
percent.
Analysts say that while Indian stock
prices have risen faster over the last two months than
other markets have, it looks attractive valued at
current levels. When compared to other indexes like the
American Stock Exchange and the Toronto, Swiss,
Australia and Taiwan markets, whose price-to-earnings
ratio (a number that justifies the value of a share by
comparing its market price and earnings potential) is
anywhere between 30 and 40, India's benchmark Sensex
index is still at 16.
Which is why perhaps
foreign investors are increasingly looking at Indian
companies. “A good evidence of the increasing interest
in Indian companies is that foreign institutional
investors have pumped in an unprecedented $6 billion
into Indian equities during the year until November,”
said Nasdaq's Dass.
Moreover, ADRs of local
companies are not only quoted at a huge premium to their
underlying stocks, but have outperformed popular
American indices like the Dow Jones Industrial Average
and Nasdaq. For instance, the 10 Indian ADRs listed on
Nasdaq and the NYSE averaged gains of more than 60
percent over the last nine months, while Nasdaq and Dow
Jones has surged by around 40 percent and 21 percent
respectively.
According to Bryant Seaman of the
NYSE, "although the performance of Indian ADRs has
whetted the appetite for Indian companies in the US",
there's now another new reason for Indian companies to
list in the US markets. As a result of tax cuts by the
Bush administration, long-term capital gains and tax
rates on dividend income have fallen. US retail
investors, most of which fall in the highest tax bracket
of 39.6 per cent, now must pay a maximum of 15 per cent
on dividend income.
The tax cuts therefore
reward those ADR holders who have opted to invest in
dividend-paying companies. They also help to retain
investors as it cuts their tax rates on dividends
earned. While it is a generally accepted practice to
invest in equities during a bull phase, during times of
bearishness, a concession in tax of this sort will help
improve yields on dividend incomes, thus, providing
another incentive to investors to continue investing in
equities even in bearish phases.
"This is
particularly good news for Indian companies," Seaman
says, because Indian companies have not only started
paying attention on enhancing shareholders' value, but
have also started dishing out dividends every year to
lighten the burgeoning cash reserves.
According
to the Center for Monitoring Indian Economy, the top 24
privately-owned listed companies had more than $10
billion in cash and equivalents at the end of the March
fiscal year. That has grown from $7.6 billion in
2001-02, and the companies are increasingly considering
higher dividend pay-outs. Significantly, of 10 Indian
companies listed on the US exchanges, eight are already
dividend-paying companies. Only two - Sify and Rediff -
don't pay dividends yet, but both have said that they
too will be on the dividend list sooner than later.
Meanwhile, according to Nasdaq's Dass, 150
Indian companies are already in the process of
disclosing their financial statements in line with the
US's Generally Accepted Accounting Practices (US GAAP),
"which is a clear indication that Indian companies are
getting ready to hit the US markets." Until now just 15
Indian companies prepare their accounts meeting the US
GAAP standards. "Moreover, the additional issuance of
Infosys' ADRs in July that received good response [Infy
ADRs currently rule at around $84 up from the July issue
price of $49 per ADR], has enthused Indian companies
too," he says.
"Undoubtedly Indian companies
have realized that the market is ready and has appetite,
and are now ready to take advantage of it," said Sanjeev
Nanavati, of depository receipt services Citigroup.
"Indeed, Indian companies cannot always expect the
market to wait until they are ready."
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2003 Asia Times Online Co, Ltd. All rights reserved.
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Dec 10, 2003
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