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Risk return trade off
This document discusses the benefits of American Depository Receipts (ADRs) for Indian companies and international investors. It notes that ADRs allow Indian companies to raise capital from foreign markets while providing international investors exposure to the Indian market to gain higher returns and reduce systematic risk through diversification. The rising Indian stock market and strengthening rupee benefit ADR holders by increasing the dollar value of their investments and savings.
Risk return trade off
- 1. Rising Rupee &Market, Benefit To ADR Holder: An Approach To Risk – Return Trade Off International Diversification of Portfolio, for High Return & Reducing Systematic Risk Citi Bank Depository DR for ABC Investor (India) Ltd. In US Capital Creation of Depository Market Listing on NYSE/ NASDAQ/LSE/LxSE IN ABC INDIA LTD LISTED ON BSE •10 ADRs representing one share each. •BSE rises by 25 % • i.e. 10 shares of ABC ltd. @ Rs. 480 each. •ABC Shares has beta coefficient 1.00 appreciated by 25% • Invested Rs 4800/- Inflow • When US $ 1.00 = Rs 48.00 (US $ 100) • US $ 100 Inflow of Capital •Current market price, Rs 600/- each share Invested US $ 100 Received US $ 150 Collected Rs 6000/- Rupee appreciate to US $ 1.00 = Rs 40/- Net Saving US $ 50 10 shares of ABC India ltd sold for Rs 600/- (net tax & brokerage) Return to ADR Holder Conversion of Rs. 6000.00 US $ 150 1
- 2. International Diversification ofPortfolio, for High Return & Reducing Systematic Risk Growing Economy • Stability of Rupee • Rising Sensex Entry of Capital Inflow • Control in Inflation DR • High GDP Investor • Partial Capital Listing on NYSE/ NASDAQ/LSE/ LxSE SHORT – LISTING BLUE CHIPS COMPANIES • Infosys • UTI Bank • Hindalco • Ranbaxy •Tata Motors EMERGING SECTORS • I.T • Banks • Metal • Pharmaceuticals • Automobile PRIMARY MARKET INTERNAL MARKET Profit & capital out flow Account Convertibility Creation of ADR/GDRS Market • Technology • Good Governance BSE/ NSE EFFICIENT MARKET • On Line Trading • Dematerialization • Foreign Broker • Efficient Pricing • Custodial Services • FIIs presence Two-way discovery of price & arbitrage Value For Investment •Higher share price •Liquidity •Blue chip •Increase in FIIs holdings •Expansion stage of companies SECONDARY MARKET EXTERNAL MARKET Two-way Market Integration: Atop Down & Bottom Up Approach Using the Fungibility Profit Booking on underlying • Accounting Disclosure • Global Perspective High EPS and Dividend Conversion of Dividend amount in US $ Remittance of US $ to Holders 2