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May 19, 2001
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Money > Business Headlines > Report May 19, 2001 |
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Fungibility, a big lure for ADR investorsSangita Shah Corporates planning to raise funds abroad through depository receipts are set to witness tremendous investor appetite following the two-way fungibility of American depositary receipt/global depository receipt. "Though the permission has been recent and there are no instances to quote, theoretically speaking it will facilitate investors to gain from it. Opportunity costs in India are high and the facilitation for converting ADR/GDR into shares and vice-versa will give impetus to invest in Indian floats," Nilesh Shah, chief investment officer, Templeton MF said. Overwhelming response to the ADS of Satyam Computer Services has displayed that proactive announcements have made a positive impact. This was the first ADR issue after the announcement of two-way fungibility by Finance Minister Yashwant Sinha in his Budget proposals on February 28. "Two-way fungibility did have a positive impact along with confidence creation among investors due to the recently bar on badla and introduction of options in stocks," Amit Chandra, executive vice-president of DSP Merrill Lynch said. The wide difference between the domestic and the global prices of Indian stocks will narrow down substantially and bring down the hefty premiums quoted abroad. Simultaneously, it will also increase volumes in these counters abroad, analysts say. However, the two-way fungibility will facilitate in leveraging arbitrage opportunity often unlike the only one opportunity available earlier, investment bankers said. While most of the time stock indices at home have been following the Nasdaq in particular and other world markets in general, Indian stocks listed abroad were at a sharp premium over the domestic prices in most cases. It has been almost a set trend that when Indian markets witnessed a slump, the stocks listed abroad fared better during the same period, thanks to the arbitrage opportunity available to only select investors (read FIIs). However, with the new fungibility norm, the discrepancy is expected to be removed and will also provide arbitrage opportunity to a wider section of investors as domestic shares will also be in a position to be converted into ADR/GDR. Powered by YOU MAY ALSO WANT TO READ:
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