Investors holding the depository receipts can trade on the local stock exchanges of their country. As shares can not leave their home country and if a foreign investor wants to invest in Indian markets, they will have to follow the below process.

• They need to exchange their money into Indian Rupees
• They will have to open a brokerage (trading account)
• They can trade in the Indian securities
• All this hassle has been removed with the issuance of the depositary receipts.

Issuance of Depository Receipts

Investor contacts the broker in the local bank if they are interested in purchasing the security. The local bank in the investor’s home country (called the depository bank) will assess the security before deciding to purchase the shares.

The broker within the depositary bank will purchase the shares either on the local stock market that it trades in or within the foreign stock market by using another broker using a foreign bank, which is additionally referred to as the custodian bank.

After purchasing the shares, the depositary bank will request the shares to be delivered to the custodian bank.

After the custodian bank receives the shares, they group the shares into packets, each consisting of 10 shares. Each packet will then be issued to the depositary bank as a depositary receipt that’s traded on the bank’s local stock market.

When the depositary bank receives the depositary receipts from the custodian bank, it notifies the broker, who delivers it to the investor and debits fees from the investor’s account.

Types of Depository Receipts

American Depository Receipts – The DR’s which are listed on American Stock Exchanges and can be traded only in the U.S.A. is called American Depository Receipts or ADR. ADRs are categorized into sponsored and unsponsored, which are then grouped into one among three levels.

Global Depository Receipts: The DR’s that are not the ADR’s or the DR’s that are traded globally except for in the USA are called Global Depository receipts or GDR

Indian Depository receipts: An Indian Depository Receipt is an instrument denominated in Indian Rupees in the form of a depository receipt created by a Domestic Depository (custodian of securities registered with the Securities and Exchange Board of India) against the underlying equity of issuing company to enable foreign companies to raise funds from the Indian Securities Markets. Standard Chartered PLC became the primary global company to file for a problem of Indian depository receipts in India.

How do ADR’s work?

ADR’s are issued so that investors can invest in foreign securities.

For example, Infosys shares can not be traded on NYSE. So if an investor wants to invest in Infosys in the USA they have to invest through ADR. The process of issuance has been described above. The brokers and dealers obtain ADRs by buying already-issued ADR within the US financial markets or by creating a replacement ADR. Already-issued ADR is often obtained from the NASDAQ or NYSE.

Creating a replacement ADR involves buying the stocks of the foreign company within the issuer’s home market and depositing the acquired shares in a depository bank within the overseas market. The bank then issues ADRs that are equal to the number of the shares deposited with the bank, and therefore the dealer/broker takes the ADR to US financial markets to sell them. The decision to create an ADR depends on the pricing, availability, and demand.

The dividends that are declared by the company in the parent country are paid in US dollars to the ADR holders. The company credits the dividend in the local currency and the dealer/broker distributes that after taking into account the conversion rate and the taxes of the foreign country. This makes it easy for the investors in the USA to invest in the company without worrying about the exchange rates etc. To find out the financial health of the company the US banks that deal with the ADR’s require the foreign company to furnish the financial statements.

Here is the list of Indian Companies that are traded in the U.S. Markets(source: businessupturn.com)

• Dr Reddy’s Laboratories – NYSE: Pharma & Biotech; Established in 1984. And listed in the year 2001.
• HDFC Bank Ltd. – NYSE: Banks; Established in 1995.
• ICICI Bank Ltd. – NYSE: Banks; Established in 1994 and listed in the year 1999.
• Axis Bank Ltd. – US OTC; Partnership with Max Life insurance.
• Infosys Ltd.  – NYSE: Software & Computer Services; Established in 1981 and listed in the year 1999 in NASDAQ which eventually shifted to NYSE in 2012.
• MakeMyTrip Limited – NASDAQ: Travel & Leisure; Established in 2000.
• Rediff.com India – NASDAQ: Newspaper and Magazine; Established in 1996. It operates through two major segments, one being the India Online Business and the other the US Publishing Business.
• Yatra Online, Inc. – NASDAQ: Travel & Leisure; Recently, announced Pricing Of Public Offering Of 12,500,000 Shares at $0.80 Per Share.
• Azure Power Global Limited – NYSE: Electric Utility; independent solar power producer.
• Eros International Plc – NYSE: Motion Pictures Entertainment Services; Company’s distribution network extends to over 50 countries, such as the United States, the United Kingdom, the Middle East, Germany, Poland, Russia, Romania, Indonesia and Arabic speaking countries.
• Grasim Industries – US OTC: Construction & Materials; Company of Aditya Birla Group.
• Sify Technologies Limited – NASDAQ: Software&Computer; Established in 1995 and listed in the year 1999.
• Tata Motors Ltd. – NYSE: Automobile Engineer; Established in 1945 and listed in the year 2004.
• Mahanagar Telephone Nigam – US OTC: Fixed Line Telecom; provides telecommunication services in Nepal and Mauritius through joint ventures and subsidiaries.
• Vedanta (Sesa Sterlite Limited) – NYSE: Construction & Materials; Listed in 2007.
• Videocon d2h – NASDAQ: Media; Listed in the year 2015, issuing ADR worth $325 million to the public.
• Wipro – NYSE: Software & Computer; Established in 1945 and listed in the year 2000.
• WNS Holdings – NYSE: Business; Established in 1996 with a current market capitalization of about $1.45 billion.

Many other companies like Mumbai based Reliance Jio are in talks since they wish to raise money through foreign markets. However, the Government has also introduced a bill in the Lok Sabha as the Companies (Amendment) Bill, 2020 (Bill). This allows the direct listing of entities on the cross-border (overseas) exchanges without listing them in the domestic markets. So we are hoping that Indian companies will directly get listed on the U.S. Exchanges without the need for the ADR route.