The trading pattern in Indian companies with listed depositary receipts (DRs) such as ADRs (American) and GDRs (global) throws interesting trends. Global investors
are willing to pay top dollars for good Indian companies. On the other hand, global investors
seem uninterested in companies with questionable prospects even if they are available at a deep discount to their price of their underlying.
For instance, shares of HDFC Bank ADR
command a premium of 18 per cent to their underlying shares. The high premium is partly due to lack of investment legroom for foreign portfolio investors
(FPIs) in the domestic market. Wipro and Reliance Industries are other domestic companies which usually command a premium in the overseas market. Meanwhile, the ADR
trades at a discount of nearly 30 per cent to their domestic shares.
Similarly, DRs of Dish TV traded in London were at a discount of over 10 per cent to their domestic shares last week. “Under the normal course, there is parity between ADRs and underlying shares. Whenever there is a sharp discount or premium between the two, it signals that global investors
have a strong view on the stock. For instance, FPIs are willing to pay top dollar for HDFC Bank
but don’t want to touch a stock like MTNL
with a barge pole,” said an analyst asking not to be named.