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ADR stands for ? 

  6 Similarly, GDR stands for 

 6 Let¶s understand these better6

Every publicly traded company issues shares ± and these shares are listed and traded on various
stock exchanges6 Thus, companies in India issue shares which are traded on Indian stock
exchanges like BSE (The Stock Exchange, Mumbai), NSE (National Stock Exchange), etc6

These shares are sometimes also listed and traded on foreign stock exchanges like NYSE (New
York Stock Exchange) or NASDAQ (National Association of Securities Dealers Automated

But to list on a foreign stock exchange, the company has to comply with the policies of those
stock exchanges6 Many times, the policies of these exchanges in US or Europe are much more
stringent than the policies of the exchanges in India6 This deters these companies from listing on
foreign stock exchanges   6

But many good companies get listed on these stock exchanges   ± using ADRs and

This is what happens: The company deposits a large number of its shares with a bank located in
the country where it wants to list indirectly6 The bank issues  against these shares, each
receipt having a fixed number of shares as an underlying (Usually 2 or 4)6

These receipts are then sold to the people of this foreign country (and anyone who is allowed to
buy shares in that country)6 These receipts are listed on the stock exchanges6 They behave
exactly like regular stocks ± their prices fluctuate depending on their demand and supply, and
depending on the fundamentals of the underlying company6

These receipts, which are traded like ordinary stocks, are called    6 Each
receipt amounts to a claim on the predefined number of shares of that company6 The issuing
bank acts as a depository for these shares ± that is, it stores the shares on behalf of the receipt


Both ADR and GDR are depository receipts, and represent a claim on the underlying shares6 The
only difference is the location where they are traded6

If the depository receipt is traded in the United States of America (USA), it is called an

  , or an ADR6
If the depository receipt is traded in a country other than USA, it is called a 

 , or a GDR6


ADRs and GDRs are not for investors in India ± they can invest directly in the shares of various
Indian companies6

But the ADRs and GDRs are an excellent means of investment for NRIs and foreign nationals
wanting to invest in India6 By buying these, they can invest directly in Indian companies without
going through the hassle of understanding the rules and working of the Indian financial market ±
since ADRs and GDRs are traded like any other stock, NRIs and foreigners can buy these using
their regular equity trading accounts!



Some of the best Indian companies have issued ADRs and / or GDRs6 Below is a partial list6

Bajaj Auto No Yes
Dr6 Reddys Yes Yes
HDFC Bank Yes Yes
Hindalco No Yes
ICICI Bank Yes Yes
Infosys Technologies Yes Yes
ITC No Yes
L&T No Yes
MTNL Yes Yes
Patni Computers Yes No
Ranbaxy Laboratories No Yes
Tata Motors Yes No
State Bank of India No Yes
VSNL Yes Yes

French auction
For the first time in the country, the French auction route was adopted for NTPC FPO6 Soon after
the sober closing of the issue everyone came out in the open lashing this approach6 To analyse
the limitations of this route we first have to understand what it is all about6 Under the French
auction method, institutional buyers (qualified institutional buyer in the case of NTPC FPO)
would be given a kind of freedom to bid for the stock at a value which they think is appropriate
for it6 In this method a floor price is fixed and institutional buyers have to bid above that price
but there is no upper limit6 Now, for example, in case of NTPC any institution can bid for any
price above Rs 201 (floor price) and the highest bidder would get preference in the allotment
exercise6 This exercise is quite handy in generating good value for the stocks because a company
can get a higher price as against the book building route in which the upper band is also fixed6
That being the reason, after the revised ICDR (Issue of Capital and Disclosure Regulation)
guidelines issued by SEBI recently, this route was made available to the government for PSU


Around the globe whenever the French auction route has been adopted the trading in the
underlying security has either not existed or if it has then it has been stalled for some time, say a
month or so, before the issue6 This is due to the reason that French auction is always helpful on
price discovery if no concurrent price is available as in the case of any IPO6

On the other hand, in the matter of NTPC¶s FPO the secondary market price was always
available which restricted investors from bidding for a much higher price than the available
market price6 So it would have been a different story if trading in the NTPC stock in the
secondary market was stalled for at least 15 days before the issue because then investors would
have got inquisitive about the stock price6 Another lacuna in the French auction route that
surfaced during the time of the NTPC FPO was that it didn¶t allow institutional investors to
revise their bids6 However, a lesson has been learned and the government has now given greater
flexibility to institutions for the REC FPO so that bids can be revised6

ADRs and GDRs are not for investors in India ± they can invest directly in the shares of various
Indian companies6