Overseas trading in Indian equities up

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Trading in global depository receipts (GDRs) and American depository receipts (ADRs) in overseas markets now accounts for about half the total foreign institutional investor (FII) trades in India. Overseas trading in Indian equities is now about 32% of all such overseas trading in Indian equities.

A detailed study on the subject by Instanex Capital, a Mumbai-based investment advisor, found that Indian equities trades totalled $46.42 billion on average—taking purchases and sales together—in India, the UK and the US. Of this, $31.63 billion is by way of trades in India, and $14.79 from trades abroad.

One of the key findings of the study is that of the approximately $15 billion traded monthly overseas, almost $11 billion—as much as 73%—is in the form of ADRs. The top five ADRs account for over 70% of the traded value of all ADRs. The top five ADRs traded overseas by value are: ICICI Bank, Infosys Technologies, HDFC Bank, Sterlite Industries and Satyam Computer. On the other hand, the top five GDRs account for 83% of traded value of the 23 frequently traded DRs in London.

Says Gautam Chand, CEO, Instanex Capital: “The surge in overseas trading of Indian equities is actually a clear case of what we call ‘local convenience’. There are several players that would like to trade in Indian equities, but want to do so in a market and a trading environment with which they are familiar.” Chand says a majority of this would disappear if the products were not available to foreign investors in their local markets.

With LSE, the New York Stock Exchange and Nasdaq being the hubs of such trading, there are 162 dual-listed ADRs and GDRs of Indian companies, but only 35 of these trade regularly. There are eight exchange-traded funds (ETFs), four each on the NYSE and Nasdaq.

Pointing to the diminishing popularity of GDRs, the study has established that even recently listed ETFs in the US are more liquid than GDRs. The monthly average break-up of all Indian equity trading abroad from October 2007 to March 2008 shows that ADRs form 73%, followed by ETFs at 16% and GDRs at 12%.