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Indian ADRs draw premium to domestic share prices

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American depository receipts (ADRs) of most Indian companies are trading at a premium to the domestic market prices due to their good demand among international investors.

Out of the 11 Indian companies listed on and Nasdaq, seven are trading at a premium to the domestic market price, with the rest trading at a marginal discount based on the date for last week.

Experts say the premium on of Indian companies is the highest compared to other nations. Even within the Indian entities, the premium has been on the rise over the years. The average premium increased to 10.2 per cent in 2009, from 6.1 per cent in 2008 and 5.1 per cent in 2007.
 

IN DEMAND
  ADR
 (in Rs)
BSE price
 
(In Rs)
Premium/
discount
Wipro 954.645 657.40 45.22
Mahindra Satyam 117.4125 98.50 19.20
HDFC Bank 1,794.44 1613.40 11.22
Tata Motors 705.405 683.60 3.19
Tata Comm 306.9 304.50 0.79
Infosys Tech 2,512.40 2503.60 0.35
MTNL 72.7725 72.60 0.24
ICICI Bank 823.98 824.00 0.00
Dr Reddy's Labs 1,097.40 1097.75 -0.03
Sterlite Ind 767.715 768.30 -0.08
Patni Computer 464.7675 471.60 -1.45
Based on Feb 11 and Feb 12 prices
Conversion rate: 46.5/dollar

The increased demand for Indian ADRs has come mainly from exchange-traded funds (ETFs) listed in the US markets dedicated to India. For instance, like iPath MSCI, India Fund, Wisdomtree India, India Investment and Power Shares, which are listed on NYSE Euronext and invest in Indian companies, have driven the demand for ADRs, which in turn has led to the rise in premiums. Lack of sellers for these ADRs and foreign investors taking a lot of exposure without going through regulatory approvals in India are also driving up the premium.

“There is immense scope for more Indian companies to access US and European markets through listing on NYSE Euronext's US or European exchanges. Global investors are increasingly looking to participate in India as one of the world's major, fastest growing economies,” said Ronald Kent, executive vice-president & head of International Listings, NYSE Euronext.

Experts say foreign investors are also paying premium as they are comfortable trading in local markets. “Some prefer to trade in local markets,” said Gautam Chand, CEO, Instanex Capital, which tracks ADRs and GDRs of Indian companies.

There are also technical reasons like little headroom for conversion of local shares into ADRs. For instance, the ADR of Wipro commands a premium of 40 per cent because there is no room for conversion of domestic shares into ADRs.

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