Thursday, May 26, 2005

Infosys ADR conversion priced at $67

Well folks the ADR conversion has been priced at $67/share that is about Rs. 2881 per share (assuming $1 = 43 Rs.) . So all the lucky folks who get the offer are going to have a 30-50% returns. Here is the flip side - the offer as I said before is oversubscribed. Thus not all of your shares that you have offered for conversion will be converted to ADRs. You will have some if not all shares returned back to you.

Now what can happen going forward? I believe that the price has only one direction to go - down in the short to medium term. Here is my rationale behind it - the ADR at $67 is now going to have a large free float thereby increasing the available volume for trades on NASDAQ. This new float will bring a volatility in the price due to the market adjusting to the available float. The stock price which was about $60 has recently run upto $67 post ADR announcement. Thus there is a good reason for the price to swing back to its original levels. This will definitely have an effect on the Indian market. The price in the local market will be influenced by the ADR price since the ADR float is now larger. Thus the price locally would also come down.

So what can one do at this moment? Short Infosys in the futures market. That would be a good strategy if you were not lucky to be on the $67 gravy train.

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