Sunday, May 22, 2005

The Infosys ADR conversion for local investors

Let us start this off with the Infosys ADR conversion option that has come into the market. It has been oversubscribed by 5 times. So what does it mean? the herd felt that there is quick buck to be made and have opted for it since the ADR has always traded at a premium to the local price. Interestingly there has been nearly 5 times the number of shares offered by the investors compared to what the company had originally planned. Thus, not everybody's offer will get accepted. So a lot of people will have their money locked up since the shares have been transferred from the individual account to an escrow account. It will be released only after the conversion reaches a certain milestone. Thus any appreciation of stock price during this time will not be available to the investor. Further, due to the fact that the Indian market tends to follow the US market, post the conversion, due to increased free float in the US market, there could be a dip in prices reflecting in drop in the local prices also. Thus a double whammy it seems. One has to wait and see the outcome of this interesting option.


Hari Shetty said...

If one does not want to get hit with the price volatality of Infosys shares during the conversion process, there is a easy way out to hedge with derivatives. With hedging of risk, this is still an attractive option.

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