Foreign portfolio investors are finding listed American Depository Receipts (ADR) of Indian equities a more attractive route to ramp up exposure as many FPIs cite complications in the registration process to set up account with Indian entities, a Jefferies note has said.
This can augur well for private banks with listed ADRs, such as HDFC Bank and ICICI Bank, Jefferies added.
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ICICI Bank, Infosys, Wipro and Dr Reddy's Labs ADRs are all trading at a discount to their respective prices on the National Stock Exchange. The only ADR outperforming its NSE counterpart is HDFC Bank.
Jefferies also noted several investors own Makemytrip (MMT US) as India discretionary consumption play.
Many existing and potential investors are keen to boost their India holdings through direct exposure, but are compelled to take the ADR route because of registration-related complications in India, the note said.
FIIs are ready to pursue new ideas beyond the typical large-cap, blue-chip banking, IT and consumption names, Jefferies said. Themes like cyclicals and real estate have gained wider acceptance among foreign investors but these cannot be captured via the current ADRs available in US.
American Depositary Receipts (ADR) are non US-equities that trade on the American bourses. They offer American or other foreign investors a way to diversify by investing in equities which are not highly correlated to the US markets.
Investors also capture the growth and economic expansion of emerging markets via ADRs, instead of navigating the local stock markets.
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