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Thursday, Nov 06, 2003

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Premiums widen for infotech ADRs

K.S. Badri Narayanan

Chennai, Nov. 5

THE Infosys ADR trades at a premium of 62 per cent to its domestic stock price. So do Satyam Computer Services and Wipro; Satyam ADR now trades at a premium of 45 per cent and Wipro, at 20 per cent. The premium for these stocks stood at 44 per cent, 9 per cent and 11 per cent, respectively as on April 1 when the current rally began in the domestic bourses.

Investors can benefit from such price differential by buying the domestic equity and selling the ADR in the US markets. For instance, one can buy Infosys for Rs 5,000 in the domestic market and sell the ADR for approximately Rs 8,000, currently ruling around $88 at Nasdaq. (Two ADRs represent an equity share for Infosys.)

Of course, domestic investors may not be able to benefit from the arbitrage opportunity, as RBI rules restrict domestic investors from trading in the overseas market. NRIs can, however, take advantage of the two-way fungibility through local SEBI-notified brokers.

It may be remembered that to capitalise on this, Infosys had converted 26.09 lakh equity shares into ADRs at $49 per share during July.

Ms Kavita Hurry, CEO of ING Vysya Mutual, however, feels that the price-differentials are a temporary phenomenon. According to her, overseas investors, particularly from the US, are searching for good companies from the emerging markets. As these companies are still attractive, they are adding these stocks to their portfolios, which may narrow the price differentials.

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