India's review of depositary receipts (DRs) could open the door to increased foreign investment, according to recommendations in the M.S. Sahoo Committee report.
The report recommends allowing over-the-counter (OTC) non-capital-raising American depositary receipt (ADR) programmes on any kind of securities, not only equity.
Neil Atkinson, Asia-Pacific head of DRs at BNY Mellon, discussed the case for DRs and why he believes this is positive news both for India and those investing in Indian securities.
Atkinson said: "The M.S. Sahoo Committee's ground-breaking recommendations are terrific news for India and the global investment community. The introduction of the new scheme for DRs will provide global investors with convenient access to Indian companies, who in turn can attract foreign investment through this flexible and cost-efficient securities product.”
“In permitting OTC non-capital-raising DRs, India would join more than 60 countries worldwide whose companies have established non-capital raising DR programs for secondary market investors.”
The M.S. Sahoo report highlights the fact that current regulatory constraints are inhibiting foreign investment in India. It is thought that greater access to DRs may meet some of the demand which is not currently being satisfied.
Atkinson continued: "While DRs remain a valuable source of capital-raising from overseas investors, today they are much more than that. DRs play an essential role in cross-border trading and are a preferred instrument for companies listing their shares on global markets and for investors seeking international portfolio diversification.”
“Not only do they broaden and diversify the range of investors who participate in capital markets, but adding a DR programme can also provide greater visibility for issuers.”
