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ADR/GDR investors are better off

P Vaidyanathan Iyer

Investors in American Depositary Receipts (ADRs) and Global Depository Receipts (GDRs) of Indian companies have been better off compared with their counterparts holding Indian stocks in the last three weeks following the announcement of the 2001-2002 Budget. This is despite the continuous fall in Nasdaq during the period.

For example, during the last three weeks, ICICI Bank's ADR was down by 13 per cent -- from $13.1 on March 1 to $11.3 on March 22 -- whereas on the Bombay Stock Exchange, the scrip slid by over 20 per cent to Rs 163.

Similarly, VSNL was down 14.6 per cent on the BSE, while the slump in its ADR was only 11 per cent. Silverline, which listed itself on the NYSE, dropped by almost 49 per cent to $3.9, while on the BSE, its market cap eroded by over 51 per cent.

However, the depreciation in the Wipro and Infosys scrips at the Indian bourses was quite in sync with that at the Nasdaq. Wipro Tech dropped 37.7 per cent from Rs 2420 to Rs 1506 on the BSE. On the Nasdaq, too, the scrip fell 37.9 per cent to $33.25. Infosys followed suit and slumped by 24 per cent on both the BSE and the Nasdaq.

The arbitrage opportunity which existed only within the major stock exchanges in India has now been extended to the global markets too with Union Finance Minister Yashwant Sinha allowing two-way fungibility for ADRs/ GDRs, wherein converted local shares can be converted to ADRs/ GDRs.

Mutual funds and foreign institutional investors (FIIs) can now take advantage of the opportunity and trade between Indian and American markets.

In the last three weeks, Indian stock markets have witnessed extreme volatility with the Sensex registering intra-day movements of up to 900 points a day. Allegations of insider trading by the office bearers of the BSE and price rigging by select brokers hit the Sensex further.

The Nasdaq, though not calm, also moved southwards with major technology companies in the USA issuing profit warnings and consequent lower EPS (earnings per share).An analysis of the scrip prices and their depreciation in the last three weeks reveals that prices of stocks in the Indian bourses have plummeted more rapidly than in the Nasdaq or the New York Stock Exchange.

During the period though, Nasdaq was down 255 points or 11.5 per cent compared to the Sensex, which plunged by 558 points or over 13 per cent.

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