The latest “Live Charts” link to be added at the top of the right side-bar relates to Indian ADRs. It contains 1-year, 3-month and 5-day charts of the Bank of New York’s India ADR index, which tracks 11 Indian ADRs, listed below:

 

I’ve also added 1-year and 3-month charts for each of these 11 ADRs, as well as relative strength charts that compare each stock to the index, over a 3-month period.

Suggestions welcome for other “Live Charts” pages.

Per the Bank of New York, the continuous buying and selling of American Depositary Receipts (ADRs) in local and US markets tends to keep the price differential between both markets to a minimum. As an example, the ICICI Bank ADR (IFY) that trades on the NYSE in the US should closely track the corresponding ICICI Bank shares that trade on the BSE and NSE in India.

To test this, I looked at the year-to-date performance, as well as the past 52-week performance, for major Indian ADRs.

What’s surprising is that there is significant difference between performance for ADRs and Indian shares of most companies, over both time periods. For example, in the case of Infosys, the ADR returned only 14% while the corresponding Indian script returned over 40% over the same period! Certainly, exchange rate fluctuations can’t be held responsible, since the discrepancy in returns is not consistent across stocks, nor correlates with changes in the USD:INR rate.

The above table indicates significant arbitrage opportunities for brokers/traders -  if the ICICI ADR is trading for more than the dollar equivalent ICICI share in India, a broker can buy ICICI shares in India, and issue equivalent ICICI ADRs in the US, making a tidy profit on the transaction, even after factoring out commissions and other expenses.

Perhaps someone can shed light on this - is there anything I am getting completely wrong?

The Bank of New York website is an excellent resource for data on Depository Receipts (DRs). Per the BNY, Depositary Receipts are “U.S. securities that generally represent a non-U.S. company’s publicly traded equity“. You can compare the performance of various ADR stocks and indices by country, region, industry, what have you! The site has reasonably good charting capabilities, as well as details on each ADR , including institutional ownership, dividends, etc.

The 1-year & 3-charts below show the Indian ADR Index vastly outperforming the S&P 500.

Source: Bank of New York

But if you go back 5 years, things get reversed! The Indian ADR index was launched at the height of the dot-com bubble (~ March 2000), and it dropped like a stone for almost two years. Since then, its come back strong, but it lags the S&P 500 by a wide margin.

Source: Bank of New York

This shows the importance of getting in and out at the right time, given the volatile swings in emerging market stocks. Also, my guess is that the steep drop in 2000-2002 came from ADRs that aren’t even part of the index today - think Silverline. Of all Indian ADRs, these are the current constituents of the BNY index.

Source: Bank of New York

US investors looking for an easy (dollar-based) entry into the Indian markets have three ETFs to choose from:

1. Halter USX India Fund (HXI): “The Index includes companies that conduct the majority of their business within India, are listed on a the New York Stock Exchange, American Stock Exchange or NASDAQ Stock Market and have a market-cap greater than $50 million based on the average closing price for the prior 40 trading days.”

2. Morgan Stanley India Investment Fund (IIF): “The Fund will invest at least 65% of its total assets in equity securities of Indian issuers; including ADRs. The Fund may invest up to 25% of its total assets in unlisted equity securities of Indian issuers.”

3. The India Fund (IFN): “The fund will invest at least 80% of its total assets in the equity securities of Indian Companies.”

Here’s their relative performance, since Oct ‘01. I’ve normalized the values for easy comparison, and you can see that IIF and IFN moved in tandem, while the Halter index lagged behind.

If you prefer to invest directly in stocks, there are several Indian ADRs (American Depository Receipts), including techs (Infosys, Wipro), pharma (Dr Reddy’s Lab), financials (ICICI Bank) and so on.

Source: BigCharts.com

As for performance, Satyam (SAY) and Rediff.com (REDF) have outperformed all other ADRs since 2001. For detailed coverage of these ADRs, check out the IndiaStockBlog, part of the Seeking Alpha network. Also, here’s an academic look at the effectiveness of Indian ADRs as investment vehicles.

Among the few US bloggers who take interest in the Indian markets is Bill Cara, with whom I have collaborated several times since ‘04. Bill’s analysis of the capital markets is a must-read for all investors/traders; and he’s been regularly commenting on India as well.

His latest post offers a 2005 re-cap of India-related funds in the US (IIF, IFN), the $:Rupee exchange rate and the Sensex. As Bill notes, I plan to monitor the India Forum on his revamped site, and look for other ways to extend our joint efforts.