India Business Law Journal –  December 2021/January 2022

Indian markets on a high

The past year has been peppered with headline-grabbing equity market offerings from the country’s financial, industrial and technology companies. That they have happened in the midst of a pandemic is testament to the strength of the market and reservoirs of assets held by investors, both institutional and retail.

It also speaks to investors’ needs to remain upbeat on the Indian economy, having bet on the future growth of companies big and small. Add to this factors such as the recent souring of foreign investor sentiment on China, and the fact that equity markets are riding on such a high will not be altogether surprising.

So, what does all of this imply for the Indian economy at large, and is the confidence in India’s growth story warranted? While there is little doubt about the nation’s promise, there are valid concerns about the size of the challenges that lie ahead, not least on account of the pandemic that has pushed millions back into poverty. Yet none of this may be relevant for the prospects of the equity markets, the fortunes of which are often no indicator of broader prosperity.

This issue’s Cover story analyses those equity markets, including data provided in the government’s Economic Survey 2021-22, which shows that retail participation was at an all-time high. Lawyers say this was one reason for the record INR1.1 trillion (USD15.9 billion) fundraising from initial public offerings (IPOs).

Does this increase in retail participation suggest India is on its way to a long-cherished goal of deepening its equity capital markets? The answer may lie in how well a much anticipated mega IPO by the Life Insurance Corporation goes. As corporate lawyers are quick to point out, the proposed reservation for policyholders coupled with a surge in demat account numbers will increase retail participation and interest. There is clearly much to look forward to in the coming months.

Our What’s the deal? report is India Business Law Journal’s Deals of the Year 2021, which showcases 50 deals and disputes. Our coverage focuses on the significance of these remarkable deals and also the law firms that worked tirelessly to bring them to fruition, having adjusted to the challenges of pandemic life.

Choosing the deals was an interesting exercise as we sought to showcase headline-grabbing transactions such as Tata’s acquisition of Air India, innovative debt deals such as Delhi International Airport’s green bond, and also some that were more low-key but likely to have interesting consequences.

Case in point is Sommet’s acquisition of a stake in Indian School of Hospitality, which heralded the entry of hospitality education leaders École Ducasse and Les Roches into India. While it is unlikely to have made headlines when it happened, it is expected to widen the availability of hospitality, culinary and management education in a country with one of the youngest populations in the world.

Writing in Vantage point, Lalit Bhasin, president of the Society of Indian Law Firms, highlights the existence of differing treatments for tobacco cigarettes and their electronic counterparts. As it stands, the advertising of tobacco and tobacco products is prohibited, and its use is regulated. But on the other hand the sale, storage and manufacture of e-cigarettes is banned entirely. This, Bhasin argues, is both illogical and unconstitutional.

In The Briefing we focus on the Competition Commission of India’s (CCI) penalty of USD27 million handed out to Amazon for failure to furnish true and complete details of its acquisition of a stake in Future Coupons. The CCI has also reversed its decision on the 2019 approval that it granted to the US e-commerce major.

Lawyers say the order is unprecedented and raises many legal questions and, while the penalty will be small change for Amazon, there is much at stake because the action has rattled the confidence of foreign investors, some of whom see it as a message to the business community not to mess with the regulator.

The elephant in the room continues to be that Indian foreign investment law does not permit a foreign entity to hold a majority stake in a multi-retail company, which means Amazon cannot directly acquire a shareholding in Future Retail, which is on the brink of bankruptcy.

Our Intelligence report turns the spotlight on the sheer number of criminal cases filed against cheque defaulters, which has overwhelmed India’s judicial system. One obvious solution would be to decriminalise what is often a civil dispute, but lawyers aren’t convinced.

While there is little hope that the status quo can be altered through legislative change, the rise in popularity of electronic payments may provide relief to overburdened courts. Until that happens the law in this respect will continue to be out of step with reality.