Sebi considers infusing fresh life into Indian Depository Receipts

Move could deepen domestic capital markets, help MNCs easily list locally

The Securities and Exchange Board of India (Sebi) is evaluating a revival of Indian Depository Receipts (IDRs), with a renewed focus on disclosures and investor protection, according to people familiar with the matter.

 

The regulator has initiated internal discussions on changes required to make the instrument more viable and safer for domestic investors, they added.

 

IDRs allow overseas-listed companies to offer their shares in India.

 

At the core of the discussions is whether IDRs can be repositioned as a credible route to deepen India’s capital markets by giving investors access to global companies.

 

“There have been discussions on how to ensure that IDRs give direct exposure to investors while maintaining strong regulatory protection,” said a person aware of the deliberations.

 

The person added that disclosure standards could be aligned with those applicable to Indian-listed companies to address information asymmetry concerns.

 

“If we want to expand the market and widen the pool of instruments available to investors, foreign securities are one such option,” the person said.

 

Emailed queries to Sebi remained unanswered till press time.

 

The IDR framework has historically seen limited traction. The only IDR issuance was by Standard Chartered Plc in 2010, which eventually delisted in July 2020.

 

The renewed push comes at a time when Indian markets are offering premium valuations, particularly for local subsidiaries of multinational companies (MNCs). Already, MNCs such as Hyundai and LG have successfully listed their India units at a hefty premium to their parents.

 

However, such listings typically require an India-incorporated entity.

 

IDRs could provide an alternative route for global firms to tap Indian capital without restructuring or setting up local subsidiaries.

 

Market participants say valuation arbitrage and increased local visibility are key drivers.

 

“Some companies may look at IDRs to benefit from better valuations and more active trading, especially if they are not very liquid in their home markets,” said a market expert.

 

The expert added that existing routes such as offer-for-sale structures — where the overseas parent eventually distributes proceeds — have proved inefficient. Reverse flipping, too, has slowed due to its cost and complexity.

 

However, investment bankers caution that the success of IDRs will hinge on broader participation, particularly from domestic institutional investors (DIIs).

 

“IDRs work differently from ADRs (American Depositary Receipts) or GDRs (Global Depositary Receipts) because the company is already listed overseas,” said an investment banker.

 

He pointed out that domestic mutual funds face constraints in investing, as their overseas investment limits are already fully utilised and have not been revised amid currency pressures.

 

“From a foreign portfolio investor (FPI) perspective, investment decisions would depend on factors such as liquidity and taxation in the respective jurisdictions,” he added.

 

Legal experts emphasise that any revival would require addressing structural bottlenecks and ensuring investor rights are on a par with domestic listings.

 

Hardeep Sachdeva, senior partner at AZB & Partners, said investor confidence would depend on coordinated regulatory clarity. “Indian investors have historically been cautious about overseas instruments,” he said.

 

Confidence will improve only if Sebi, the Reserve Bank of India (RBI), and the government work together to create a harmonised framework covering foreign exchange rules, investor protection, and enforcement, he added.

 

Without such clarity, IDRs risk remaining a niche product rather than becoming a credible investment avenue, Sachdeva noted.

 

Meenakshi Acharya, founder and partner at RMA Legal, said revisiting the framework could help deepen markets and allow global issuers to access domestic liquidity without restructuring.

 

However, she flagged persistent issues that undermined earlier attempts.

 

“Investor participation has been constrained due to low liquidity and the absence of seamless fungibility with underlying securities,” she said.

 

Acharya also highlighted ambiguity around voting rights, taxation, and enforceability of investor protections as key concerns that eroded confidence.

 

“Limited liquidity and weak price discovery have also made IDRs less attractive compared to established global listing routes,” she added. 

Can IDRs go from dormant to dynamic?

• IDR is a financial instrument that allows foreign companies to raise funds in India by issuing shares to Indian investors
• Similar to ADRs, the underlying equity shares are listed typically in the company’s home market 
• Requires compliance with Indian disclosure and regulatory norms
• Only one major IDR issuance was by Standard Chartered in 2010
• The issue raised about ₹2,500 crore, but saw limited investor participation post-listing
• No other global companies followed, and the market remained virtually inactive
• Capital gains, dividend taxation less favourable compared to direct equity investments
• Low trading volumes made price discovery inefficient after listing
• Converting IDRs into underlying shares seen cumbersome