ADRs: how Indian companies list their shares in America
An ADR lets an Indian company's shares be traded by investors in the United States. This guide explains what an American depositary receipt is, how it works and why companies use them.
Quick answer
An ADR, or American depositary receipt, is a certificate traded in the United States that represents shares of a foreign company, such as an Indian firm. It lets American investors buy into the company in dollars, without dealing directly with the Indian market, while the underlying shares are held by a bank.
Key takeaways
- An ADR represents a foreign company's shares in the United States.
- It lets American investors buy in dollars.
- A bank holds the underlying shares.
- It helps Indian firms reach global investors.
- Its price broadly tracks the home share, adjusted for currency.
What is an ADR?
An ADR, short for American depositary receipt, is a certificate that trades on a United States market and represents shares of a company based outside America, such as an Indian company.
Instead of buying the Indian shares directly, a United States investor buys the ADR in dollars. Behind the scenes, a bank holds the actual shares and issues the receipts that trade in America.
How does an ADR work?
A depositary bank buys the company's home-market shares and issues ADRs against them. Each ADR represents a set number of the underlying shares, so the two are closely linked.
American investors then trade the ADRs like any United States stock, in dollars and during United States hours. This makes investing in a foreign company simple and familiar for them.
Why do Indian companies issue ADRs?
An ADR lets an Indian company reach global investors and raise money in the United States. It can raise the company's profile and broaden its base of shareholders beyond India.
| Feature | ADR |
|---|---|
| Trades in | United States, in dollars |
| Represents | Shares of a foreign company |
| Underlying held by | A depositary bank |
For the company, this access to a large, deep market can be valuable, both for raising capital and for global visibility.
How is an ADR priced?
An ADR's price broadly tracks the company's home-market share price, adjusted for the currency and the ratio of shares per ADR. So if the Indian share rises, the ADR usually rises too.
Differences can appear because of the time zones, currency moves and demand in each market, but arbitrage tends to keep the two prices closely linked.
What should investors know?
For Indian retail investors, ADRs are mainly a concept to understand rather than something they trade, since they are United States instruments. They show how a company reaches global capital.
Understanding ADRs helps you follow news about Indian firms listed abroad. Any investment decision should be your own after proper research.
Frequently Asked Questions
What is an ADR?
An ADR, or American depositary receipt, is a certificate traded in the United States that represents shares of a foreign company, letting American investors buy in dollars while a bank holds the shares.
How does an ADR work?
A depositary bank buys the company's home-market shares and issues ADRs against them, each representing a set number of shares, which American investors then trade like any United States stock.
Why do Indian companies issue ADRs?
To reach global investors and raise money in the United States, which can raise the company's profile and broaden its shareholder base beyond India.
How is an ADR priced?
Its price broadly tracks the home-market share price, adjusted for currency and the ratio of shares per ADR, so it usually rises and falls with the underlying Indian share.
Can Indian investors buy ADRs?
ADRs are United States instruments, so for Indian retail investors they are mainly a concept to understand rather than something they trade directly.
Disclaimer: Investments in the securities market are subject to market risks. Please read all related documents carefully before investing. This article is intended for informational and knowledge purposes only and should not be considered tax, financial, or investment advice. Tax laws and deductions may vary based on individual circumstances and regulatory changes. Readers are advised to consult a qualified tax advisor or financial professional before making any investment or tax planning decisions.
Indira Securities Private Limited (SEBI Reg. No.): NSE TM ID: 12866 | BSE TM ID: 663 | CDSL DPID: 17000 | SEBI Reg. No.: INZ000188930 | MCX TM ID: 56470 | NCDEX TM ID: 01277 | CDSL Reg. No.: IN-DP-90-2015 | CIN:U67120MP1996PTC085111 | RA SEBI Reg. No.: INH000023269 | IA SEBI Reg. No.: INA000021410 | SEBI Merchant Banking Reg. No.: INM000013536
