The Hindu Business Line : ADR route quite profitable

Taking the ADR (American Depository Receipt) route may be one easy option, provided you are prepared to stick to a very small universe of stocks. Or so the returns on the universe of ADRs of Indian companies would seem to suggest.

In 2003, even as the Indian stock markets were afire, the ADRs of Indian companies easily outperformed their underlying stocks.

The global investor fancy for Indian stocks, combined with the positive sentiment that prevailed at the US stock markets owing to the revival in the economy, appears to have had a ripple effect on the Indian ADRs. On an average, the ADRs have returned 87 per cent over 2003, where the underlying securities on the Indian markets have returned just 49 per cent.

Leading the pack is the ADR of Satyam Computers with a gain of 129 per cent. In the Indian markets, the stock has gained 31 per cent year-on-year. The other top performers are the ADRs of HDFC Bank, ICICI Bank and Infosys. On the other hand, the gap between the returns of the ADRs on Dr Reddy's, MTNL and VSNL as compared to their Indian counterparts is relatively narrow.

Not only have the volumes improved but the premium has also widened in 2003. For instance, Satyam ADR's premium to its underlying equity surged in December to all-time level of 77 per cent, pushing Infosys to second place for the first time since these ADRs were listed.

The trend of the ADRs outpacing the domestic stocks stands out particularly because the ADR universe is dominated by technology companies.

Technology stocks have tended to lag the Indian markets in the recent rally. But, judging by the huge returns on the ADRs of Indian technology companies, it appears that investors in the US did repose their faith on the outsourcing story.