March 13, 2013
/PRNewswire/ -- India's drive to lure investors from overseas received a boost in 2012 with the adoption of the Qualified Foreign Investor initiative, but to remain one of the world's top investment destinations the nation should review its depositary receipt (DR) regulations, says BNY Mellon in its new report,
' India: Easing Conditions for Investors'
's first depositary receipt programme for Reliance Industries was established in 1992. Since then, only 13 Indian corporate have established American Depositary Receipt programmes. As a result, consensus is growing amongst the global investment community that
needs to consider re-evaluating its DR rules to stay abreast of evolving markets.
, BNY Mellon's
head of depositary receipts, said: "We are often asked, especially by U.S. investors, to establish ADR programmes for Indian companies but are restricted from doing so by current regulations. There is significant international demand for Indian equity in the form of DRs that simply cannot be satisfied via the routes now available. Many investors prefer the familiarity and convenience of DRs, are unable to invest directly, or are unable or unwilling to use derivatives."
A review of public filings in 2012 shows that nearly half of all global funds that invest in
using depositary receipts choose not to invest directly through ordinary or local shares.
BNY Mellon believes introducing over-the-counter (OTC) non-capital-raising ADR programmes for Indian companies could solve this challenge. It met recently with the Ministry of Finance, SEBI, and the Reserve Bank of
to discuss the merits of this proposal and how it might benefit
and Indian corporates. In permitting OTC non-capital-raising DRs,
would join 67 other countries that provide investors with access in this way, including
Commenting on BNY Mellon's report,
, CFA, President of Strategic Global Advisors, LLC, which has
in international equity assets under management, notes: "We are very interested in any new ADRs available for companies based in India. We invest in
but generally, we can only access that market through ADRs since most of the accounts we manage, even the institutional accounts over
do not have custody capability in India. We find the number of ADRs available for
to be extremely limited."
, head of BNY Mellon's Indian Depositary Receipts business, observed: "It's been over 20 years since the first DR programme from
was established, and while it is clear the elephant can already dance, we think the time is right to learn some new steps. We believe allowing Indian companies to attract foreign investment via non-capital-raising ADRs will create the access investors crave and encourage foreign investments, helping to meet
's economic objectives and creating value for
DRs play an essential role in cross-border trading and are a preferred instrument both for companies listing their shares on global markets and investors seeking international portfolio diversification. Not only do they broaden the range of investors who participate in capital markets, but adding a DR programme can also enhance the liquidity of an issuer's securities.