Depository Receipt
A Depository Receipt (DR) is a negotiable financial instrument issued in one country's market to represent ownership of shares listed in another country; Indian companies use American Depositary Receipts (ADRs) listed on US exchanges and Global Depositary Receipts (GDRs) listed on European exchanges to raise foreign capital and broaden their international investor base.
The mechanics of a DR involve a custodian bank in the company's home country (India) holding the underlying shares, while a depositary bank in the foreign market issues receipts backed by those underlying shares. Each DR represents a fixed number of underlying shares (the DR ratio). For example, one Infosys ADR on NYSE has historically represented one underlying equity share of Infosys listed on NSE/BSE. The DR price in USD approximately equals the Indian share price in INR converted at the prevailing exchange rate, adjusted for any premium or discount driven by relative liquidity and supply-demand dynamics in each market.
India's DR programme has a distinguished history: Reliance Industries issued one of India's first GDRs in 1992, a landmark in India's post-liberalisation integration into global capital markets. Infosys listed an ADR on NYSE in 1999, becoming a flagship of India's IT sector visibility among US institutional investors. Since then, companies like Wipro, HDFC Bank, ICICI Bank, Tata Motors, and Dr Reddy's Laboratories have maintained ADR or GDR programmes.
The Indian Depositary Receipt (IDR) was created as the reverse instrument — allowing foreign companies to list on Indian exchanges and raise capital from Indian investors. Standard Chartered Bank's IDR listing in 2010 was the first such issuance, though the programme never gained traction due to thin liquidity and regulatory complexities around fungibility and repatriation.
A critical consideration for DR holders is the cross-listing arbitrage. When the ADR price (converted to INR) diverges significantly from the domestic share price, arbitrageurs can exploit the differential by converting DRs to underlying shares (or vice versa), subject to FEMA regulations governing such conversions. SEBI and RBI have periodically adjusted the two-way fungibility rules for DRs, influencing the magnitude of permissible arbitrage.
For Indian investors, understanding DR programmes is important for monitoring FPI-equivalent flows: DR programmes allow offshore capital that cannot or does not want to register as FPIs to gain economic exposure to Indian companies. Significant changes in ADR/GDR float can signal institutional positioning. During periods of INR depreciation, ADR prices in USD terms underperform the INR price of the underlying — a consideration for holders managing currency exposure.