FIIs dump local stocks, but lap up depository receipts

By siliconindia   |   Thursday, 24 April 2008, 01:40 IST
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Mumbai: Though FIIs might be selling in India this calendar year, depository receipts of Indian companies overseas over the past three months are being lapped up by foreign investors. The trading turnover of Indian companies on International Order Book (or IOB, the depository receipts trading platform on LSE) has risen 94 percent from $1.7 billion in the January-March quarter of 2007 to $3.3 billion this year, reported The Economic Times. RIL, SBI, Indiabulls Real Estate and L&T were among the scrips that have witnessed robust trading activities. RIL alone accounted for close to $1.62 billion; SBI and L&T logged turnovers of $739 million and $25 million during the considered quarter. "One of the factors that resulted in investors (hedge funds and other institutional investors) buying Indian GDRs on the IOB is the restriction on the P-Notes route imposed by SEBI," said London Stock Exchange's India and international business development manager Ibukun Adebayo. "British investors are also showing considerable interest in Indian GD Institutional investors find it easy to invest locally as they are familiar with settlement modes; they are more comfortable deriving benefits in dollar denominations as well," Adebayo added. Depository receipts (DR) represent stocks of a company trading on a foreign stock exchange. The total trading volume of Indian companies on IOB achieved a new record in 2007, clocking approximately $12 billion. The previous annual highs were $5.4 billion in 2005 and $5.2 billion in 2006. In 2007, Indian GDRs accounted for three percent of the total IOB depository receipts by value traded in that year. According to equity analysts, even American Depository Receipts of Indian companies (on NYSE and Nasdaq) are witnessing sharp demand from foreign investors. "A major portion of the rise in turnover could be attributed to the conversion of FCCBs (into DRs) floated over the past two years," said an equity analyst with an FII brokerage. "Another reason for this could be the fact that India is a very difficult market to invest in. An investor who doesn't want to go long in the Indian market will always prefer to buy DRs of Indian companies. By this, they can bypass non-flexible (FII) compliance norms," the analyst added. The DRs of most Indian companies have bounced back after their fall in the recent market meltdown. The DRs of SBI, Satyam, Infosys and Indiabulls Real Estate are trading at a heavy premium to the domestic market price.