The Hindu Business Line : Infosys ADS premium drops to 6-7 pc

The high premium that existed between the American Depository Share (ADS) and the local stock of software major Infosys Technologies has narrowed down considerably over the past 10 months. As against a premium of over 35 per cent in May last year, the Infy ADS is now seen trading at a premium of around 6-7 per cent to the local shares.

The Infosys ADS on Nasdaq had closed at $70.22 on Tuesday, whereas the local stock ended on the Bombay Stock Exchange at Rs 2,935.45 on Tuesday, a premium of 6.5 per cent.

"Moreover, the increased overseas float, especially after the second sponsored ADS issue in May last year, has resulted in a narrowing premium. The FIIs are taking twin advantage of low domestic pricing of the stock and the favourable exchange rate," analysts said.

Further, analysts said, the reduced gap between Infosys's local stock and the ADS holds good to some extent as it reduces the element of arbitrage volatility. However, the analysts expected the premium to stay at 6-8 per cent levels as it helped the foreign institutional investors to recover cross-border transaction costs.

The Infosys ADS, after crossing $80 level in January this year, is now at the $70 level.

Till a couple of years ago, the Infosys ADS used to trade at a premium of around 60-70 per cent to the local stock. However, as the company's overseas float increased, the premium started narrowing down progressively.

Similar trend in Satyam

A similar trend of narrowing premium has also been seen in the Satyam ADS that is listed at the NYSE. Satyam also put through a sponsored secondary ADS offering in May 2005.

Compared to a 30 per cent premium between the Satyam ADS and the local equity share at the time of the sponsored offering in May last year, the current premium has narrowed down to 11-12 per cent.

Wipro has not considered a sponsored ADS so far. The premium between Wipro ADS (listed at the NYSE) and the local share has almost stayed constant. The premium which was at 25 per cent in May last year is now at around 16 per cent.

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