IDR – a new global investment route for the Indian investor

The Indian Depository Receipt issue by Standard Chartered Bank is coming to the Indian retail markets today (25th May). The IDR is a receipt which represents a share, or part of it in a foreign company. The company floating the issue (in this case Standard Chartered) has to appoint an Indian Depository, which will issue receipts to investors, while the original shares are held by an overseas custodian. IDRs are thus, very similar to GDRs but are rupee denominated. IDR provides an easy route for the Indian investor to have a piece of foreign investment. While the access to foreign investment has always been possible, it was a tough route to take – with the requirement of a foreign bank account and investment in a non-rupee currency denomination. IDRs solve this problem as they are rupee denominated and can be traded in the exchange. But a key point to note is that this does not protect the investor from forex fluctuations – so any exchange rate change will affect the IDR value along with changes in the underlying price change of the stock in its home market. Standard Chartered is the first foreign firm to go for an IDR and hence the interests in this issue are two-fold - for foreign firms, this will be a litmus test to understand whether Indian markets could be a good market to raise funds while from the investor perspective, we will learn whether the need for global diversification, a sign of the increasing investor maturity, is present in the Indian investor mindset. A minimum 50% of the issue is reserved for qualified institutional buyers, but this can go up if the uptake from other segments is lesser than expected. 30% is meant for retail investors and inorder to build retail confidence, the IDR is being offered to anchor investors. Only time will tell whether this will be a success in the retail segment. The issue with gaining retail interest is the higher taxation on dividend and capital gains on IDRs compared with that on Indian stocks. If these regulations are modified, we might see more and more foreign firms raising money from India in the future.