Contents
Definition
An American Depositary Receipt (ADR) is a negotiable certificate issued by a US depositary bank (typically Citibank, JP Morgan, or Deutsche Bank) representing a specified number of shares in a foreign company. ADRs trade on US exchanges — NYSE, Nasdaq, or OTC markets — in US dollars, and pay dividends in US dollars. They were created to allow US investors to hold foreign equities without navigating foreign settlement systems; the mirror benefit is that foreign companies gain access to US capital markets and a US investor base without a full US IPO. For Indian investors, ADRs of Indian companies (Infosys: INFY, HDFC Bank: HDB, Wipro: WIT, ICICI Bank: IBN) are observable data points on how global markets price Indian corporate earnings.
How an Indian investor accesses this
An Indian resident can purchase ADRs of any foreign or Indian company through an LRS-enabled brokerage platform within the USD 250,000 annual limit. There is no structural restriction on buying the ADR of an Indian company from abroad — but the round-trip tax and regulatory treatment differs from holding the same company's BSE/NSE-listed shares directly. NRIs holding NRE accounts can similarly buy ADRs through US brokerage accounts. ADRs settle in USD via DTCC (US depository); the underlying Indian shares are held by the custodian at the foreign depositary bank. Indian residents cannot buy ADRs on Indian exchanges — the only domestic instrument is the underlying equity share.
Tax treatment
ADR gains for Indian residents: taxed as foreign securities — short-term (<24 months) at slab rate; long-term (≥24 months) at 20% with indexation. ADR dividends: subject to US dividend withholding tax (typically 25% under India–US DTAA; some ADRs are structured to pass through the tax at 15% if a W-8BEN form is filed). The net dividend is then included in Indian income and taxed at slab, with Form 67 credit. ADR conversion fees charged by the depositary bank are not separately deductible for Indian tax purposes.
Currency consideration
ADRs are priced in USD. The ADR price of an Indian company (e.g., Infosys ADR) will approximately track the NSE share price adjusted for the INR-USD rate and the ADR ratio (1 INFY ADR = 1 NSE share). Arbitrageurs keep the two prices in line through conversion mechanisms. For a non-Indian company's ADR, the full INR-USD currency exposure applies. Currency hedging of individual ADR positions is complex and typically not cost-effective at retail lot sizes.
Worked example
HDFC Bank ADR (ticker: HDB) on NYSE represents 3 underlying NSE shares per ADR. If HDFC Bank trades at ₹1,650 on NSE and the INR-USD rate is ₹83/$, the theoretical ADR price = (1,650 × 3) / 83 = USD 59.6. If HDB ADR trades at USD 62, a 4% premium exists — typical during periods of strong foreign demand. An Indian resident buying HDB ADR at USD 62 is paying a slight premium versus buying HDFC Bank directly on NSE, but gains dollar-denominated holding and US settlement convenience.
See also
- Global Depositary Receipt (GDR)
- US Stocks for Indian Investors
- INR-USD Exchange Rate
- NRI Investing — Complete Guide
- HDFC Bank
Primary source
US SEC — Investor Bulletin: Investing in Foreign Securities via ADRs: sec.gov. RBI Master Direction — LRS (2023): rbi.org.in. India–US DTAA Article 10 (dividends). This content is educational and not investment advice. MintByte is SEBI-registered (ARN-314872, APMI APRN-01658).