American Depositary Receipt (ADR)

An American Depositary Receipt lets a foreign company raise capital and trade in the United States without directly listing its ordinary shares there. A US depositary bank holds the underlying foreign shares and issues receipts against them, which then trade in dollars on US exchanges or over the counter.

How it works

A depositary bank, such as Deutsche Bank or BNY, buys shares of the foreign company in its home market and parks them with a local custodian. Against these, it issues ADRs that US investors can buy and sell like any American stock.

Each ADR represents a fixed ratio of underlying shares, sometimes one-to-one, sometimes one ADR to several shares or vice versa. Dividends are converted into dollars and paid to ADR holders. Because they trade in US hours and dollars, ADRs spare American investors the friction of foreign currency, foreign brokers, and unfamiliar settlement systems.

In India

Several marquee Indian companies have tapped this route. Infosys and Wipro in IT, and ICICI Bank and HDFC Bank in financials, all have ADRs on the New York Stock Exchange. ICICI Bank trades under the ticker IBN, with each receipt representing a set number of equity shares, and its ADSs have been listed since 2000.

For Indian companies, an ADR programme widens the investor base, raises global visibility, and can fetch a richer valuation. For the Indian shares listed at home on the NSE and BSE, the ADR price abroad often acts as a reference point and arbitrage anchor.

Why it matters

ADRs are a bridge between Indian corporate growth and global capital. They show up in arbitrage opportunities and signal how foreign investors value Indian blue-chips.

Common mistakes

Investors sometimes assume the ADR price and the local NSE price must be identical. They rarely are, differences in currency, taxes, the share ratio, and trading-hour gaps create a persistent premium or discount that informed arbitrageurs exploit.