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Foreign investors whose ability to bet on HDFC Bank was hit after their foreign holding limit was exhausted are looking abroad to take positions on the lender. American depository receipts (ADRs) of HDFC Bank are being traded at a double-digit premium to local shares, as foreign investors scramble to take positions through these instruments.
An ADR is a dollar-denominated security that can be traded on an American exchange. Foreign entities can use such securities to take positions on a company from another country (such as India). Every ADR is equal to a certain number of shares of the underlying company. In the case of HDFC Bank, an ADR is equal to three shares in the bank.
The last available closing price of the HDFC Bank ADR translated into a rupee value of Rs 915.2, a 12.2 per cent premium to Tuesday’s close of Rs 815.65 close on the BSE.
“One of the…reasons is…the inability of FIIs to invest here. HDFC (Bank) has always been a darling of foreign institutional investors; banking and financial services have come into the limelight after the elections,” said Phani Sekhar, fund manager at Angel Broking.
Jitendra Panda, managing director and chief executive of Peerless Securities, said, “It has been a consistent performer…other banks have been volatile in price and performance…They want to take part in the upside in HDFC Bank…but are not able to buy here.”
Currently, foreign holding in HDFC Bank cannot exceed 51 per cent. The company had proposed this limit be raised to 67.55 per cent. The Foreign Investment Promotion Board (FIPB) is yet to decide on the issue.
The HDFC Bank stock, as well as the lender’s ADR, are trading at all-time highs. The ADR is trading at $47, rising 19.18 times since its November 2002 low of $2.45.
Since the elections, HDFC Bank has underperformed the BSE index tracking banking stocks. While the HDFC Bank stock has risen 3.5 per cent during this period, the BSE banking index has seen 6.3 per cent gains. In the same period, the bank’s ADR has risen 7.99 per cent.
