Indian companies wanting to raise capital from international investors face a structural problem that most people outside the finance industry never think about. A foreign investor in New York or London cannot simply open a Zerodha account and buy Infosys shares on the NSE. Stock exchanges operate under national jurisdictions. Cross-border equity trading requires a specific legal mechanism that bridges two different regulatory environments simultaneously.

Depository Receipts, specifically ADRs and GDRs , are that mechanism. Understanding how they work explains both how Indian companies access global capital and how international investors gain exposure to Indian equity growth without navigating Indian brokerage infrastructure.

Quick Definition

An American Depository Receipt or Global Depository Receipt is a negotiable bank certificate representing shares of a foreign company, enabling those shares to be bought, sold, and traded on international stock exchanges in foreign currencies.

What ADRs and GDRs Actually Are

Both instruments serve the same fundamental purpose , they allow Indian equity to be held and traded internationally , but they operate in different geographies under different regulatory frameworks.

American Depository Receipt (ADR) is a US Dollar-denominated certificate issued specifically by a US depository bank , institutions like BNY Mellon or Citibank. ADRs trade on US exchanges like the NYSE and NASDAQ. They’re governed by the US Securities and Exchange Commission and require the issuing company to comply with US disclosure and audit standards.
Global Depository Receipt (GDR) is a certificate issued for markets outside the US , primarily Europe and Asia. GDRs trade on exchanges like the London Stock Exchange, Luxembourg Stock Exchange, or Singapore Exchange, and are typically denominated in USD or Euros. The regulatory overhead is generally lower than US ADR programs, and the investor base skews heavily institutional.

The core mechanism underlying both is identical: underlying Indian equity shares are deposited with a domestic custodian bank in India, a foreign depository bank issues corresponding certificates abroad, and those certificates trade internationally.

How the Process Works End to End

Step 1: Corporate Authorization
The Indian company’s board and shareholders pass resolutions authorizing the creation of a Depository Receipt program and the overseas capital raise.

Step 2: Share Deposit with Domestic Custodian
The company transfers a batch of underlying equity shares to a domestic custodian bank located in India. These shares sit in custody and back the receipts that will be issued abroad.

Step 3: Receipt Issuance Abroad
The domestic custodian notifies the foreign depository bank that the shares are held in custody. The foreign bank issues corresponding ADRs or GDRs backed by those shares , at whatever ratio has been agreed upon for the program.

Step 4: Exchange Listing
The foreign depository bank lists the receipts on the relevant international exchange , NYSE for ADRs, LSE or Luxembourg for GDRs. Listing requirements, disclosure filings, and ongoing compliance obligations attach at this point.

Step 5: Investor Trading and Dividends
Foreign investors buy and sell the receipts in their local currency exactly as they would trade domestic stocks. Dividends declared by the Indian company are received by the domestic custodian, converted to foreign currency, and distributed to receipt holders by the foreign depository bank.

Real Examples From Indian Companies

Infosys ADR on the NYSE
Infosys deposits 1,000,000 equity shares with an Indian custodian bank. BNY Mellon in New York issues 1,000,000 ADRs at a 1:1 ratio, denominated in US Dollars. An investor in New York can buy Infosys ADRs directly on the NYSE without an Indian trading account, without managing Rupee conversions, and without navigating SEBI’s foreign investment framework.
Reliance GDR on the LSE
Reliance Industries issues shares to an Indian custodian and lists GDRs on the London Stock Exchange. Institutional investors across London, Frankfurt, and Singapore can purchase these USD-denominated receipts through local international clearing houses , with settlement in currencies they already operate in.

Key Features of Depository Receipts

Cross-border accessibility: foreign investors gain equity exposure to Indian companies in familiar currencies through familiar exchanges, with no requirement to navigate Indian financial infrastructure.
Foreign currency settlement: prices, transactions, and dividends are quoted in USD, Euros, or other local exchange currencies. The currency conversion happens behind the scenes at the depository bank level.
Custody backing: every ADR and GDR is backed by actual underlying shares held with a domestic custodian. The receipt represents real equity ownership, not a derivative.
Dual regulatory compliance: companies must satisfy both Indian regulations (SEBI and RBI) and the regulatory requirements of the foreign exchange where the receipts are listed. This dual burden is significant for ADR programs in particular.
Fungibility: many DR programs allow conversion back into domestic equity shares under prescribed rules, creating an arbitrage mechanism that helps keep pricing reasonably aligned between the foreign receipt and the domestic underlying share.

ADR vs GDR: The Core Differences

Parameter	ADR	GDR
Primary Market	United States	Europe and Asia , outside the US
Listing Venues	NYSE, NASDAQ, US OTC	London, Luxembourg, Singapore
Currency	US Dollar	USD, Euros, or local currencies
Regulator	US Securities and Exchange Commission	Local non-US exchange regulators
Target Investors	US retail and institutional	International institutional predominantly
Compliance Burden	High , SEC reporting and SOX audits	Moderate , local exchange guidelines
Liquidity	Generally higher , US retail participation	Moderate , institutional volume
Indian Issuers	Infosys, Wipro, ICICI Bank	Reliance Industries, Tata Steel, L&T

The compliance burden difference is real and consequential. A US ADR program subjects the Indian company to Securities Exchange Act reporting requirements, Sarbanes-Oxley internal control audits, and SEC disclosure standards. This is expensive and operationally demanding. GDR programs on European exchanges carry lower compliance overhead , which is one reason many Indian companies have historically preferred the GDR route for European listings.

Advantages for Companies and Investors

For Indian companies:

Access to global capital pools is the primary motivation. Institutional investors in the US and Europe manage far larger capital allocations than domestic Indian institutions. A NYSE listing opens access to American pension funds, mutual funds, and retail investors who collectively manage trillions of dollars.
Global brand credibility follows from a listing on an elite international exchange. Being listed on the NYSE or LSE signals a level of governance, disclosure quality, and business maturity that carries weight with customers, partners, and talent globally.
Valuation benchmarking against international peers can produce higher valuations for technology and growth businesses, particularly when those peers trade at premium multiples in global markets.

For investors:

Portfolio diversification into high-growth Indian assets becomes accessible without requiring an Indian brokerage account or navigating foreign investment registration requirements.
Currency simplicity matters practically. An American investor buying Infosys on the NYSE transacts in USD through their existing US brokerage account. The alternative , creating an NRI account structure to access NSE shares directly , is considerably more complex.

Risks That Require Careful Consideration

Currency risk is the most persistent factor. The underlying shares are denominated in Indian Rupees. When the Rupee weakens against the Dollar, the value of ADR dividends and the underlying asset value decline in Dollar terms , even if the Infosys share price on the NSE held steady. Currency movement can dominate share price movement in total return terms.
Compliance costs for US ADR programs are genuinely high. SEC reporting, SOX audit requirements, and legal disclosure costs create an annual overhead that smaller Indian companies may struggle to justify relative to the capital raised.
Liquidity varies considerably. Infosys and Wipro ADRs on the NYSE have active, liquid markets. Smaller company GDRs listed on European exchanges and trading only among institutional investors can have very thin daily volumes , making entry and exit at reasonable prices difficult.
Regulatory change risk is two-sided. Changes in RBI’s foreign ownership limits, revisions to FEMA regulations, or shifts in tax treaty terms can affect the economics of DR investments from either the company or investor perspective.

Practical Tips for Anyone Evaluating These Instruments

Track the Rupee exchange rate alongside the share price. A 10% appreciation in the underlying Indian share can be fully offset by a 10% INR depreciation. The net return in foreign currency is what matters, not the headline share price movement.
Check trading volume before any investment decision. An ADR with average daily volume of a few thousand shares may look attractively priced but be practically illiquid when you need to exit. US-listed ADRs generally offer better liquidity than European GDR listings precisely because retail investor participation in the US markets is deeper.
Understand the receipt-to-share ratio for each program. One ADR may represent two underlying Indian shares, or half a share, or any other ratio. This matters directly for price comparison between the DR and the domestic listing , comparing them without adjusting for the ratio produces meaningless numbers.
Get clarity on the tax treatment applicable to your specific situation. Cross-border dividends face withholding taxes in the foreign jurisdiction, with treaty relief potentially available under DTAA arrangements. Capital gains treatment differs depending on holding period and whether you’re an Indian resident investing outward under LRS or a foreign investor investing inward.

Investors looking for another way to diversify their portfolios can explore exchange-traded funds (ETFs), which provide exposure to a basket of securities through a single exchange-traded instrument.

Common Mistakes Worth Avoiding

Confusing ADRs and GDRs with direct foreign listings is a persistent conceptual error. These are bank-issued certificates representing underlying equity , they are not the same as a direct primary listing of the company’s shares on a foreign exchange. The distinction matters for regulatory treatment, settlement mechanics, and investor rights.
Forgetting about depository bank fees is an easy oversight. Administrative fees and currency conversion charges apply when dividends are processed and disbursed. The net dividend received by an ADR holder is less than the gross dividend declared by the company, and the exact deduction depends on the depository bank’s fee schedule.
Assuming price parity between the DR and the domestic share at all times leads to incorrect arbitrage calculations. Trading hour mismatches, currency conversion timing, and foreign investor demand premiums all create persistent price differences that don’t always represent exploitable arbitrage opportunities.
Ignoring holiday schedule differences between Indian and foreign exchanges can create execution problems. An Indian public holiday doesn’t necessarily mean the NYSE is closed, and vice versa.

Who These Instruments Are Relevant For

International investors living outside India who want exposure to Indian economic growth without the complexity of establishing Indian brokerage infrastructure will find ADRs, particularly large-cap, liquid ones, the most straightforward access point.
Institutional funds in Europe and Asia seeking foreign currency-denominated Indian equity exposure often access it through GDR programs, which are structured specifically for institutional trading volumes and settlement conventions.
Indian companies raising capital for international expansion, seeking global brand positioning, or targeting acquisition currency in foreign markets have substantive strategic reasons to pursue ADR or GDR programs beyond just capital access.

If you are also planning to invest in Indian-listed securities, understanding what to know before opening a demat account online can help you prepare for the account-opening process.

Conclusion

ADRs and GDRs solve a real structural problem in cross-border equity markets. They allow Indian companies to access global capital without forcing international investors to navigate Indian financial infrastructure, and they allow international investors to access Indian equity growth in familiar currencies through familiar exchanges.

The choice between the two structures comes down to target investor base, compliance capacity, and geographic focus. US retail liquidity through an ADR program comes at the cost of SEC compliance overhead. European institutional access through a GDR program is operationally simpler but produces a less liquid market. Both are legitimate paths to global capital access. The right choice depends on the company’s specific objectives and investor relations strategy.

Frequently Asked Questions

1. How are dividends and capital gains on ADRs and GDRs taxed for Indian residents?

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Dividends are subject to foreign withholding tax at source in the foreign jurisdiction , up to 25 to 30% in the US. Indian residents can claim a Foreign Tax Credit against their domestic liability under applicable DTAA arrangements. Capital gains are treated as foreign asset capital gains under the Indian Income Tax Act , holdings beyond 24 months qualify for LTCG treatment, while shorter holdings are taxed at applicable slab rates.

2. Can ADRs or GDRs be converted back into domestic Indian shares?

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3. What happens if an Indian company delists its ADR program?

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4. Why do ADRs and GDRs sometimes trade at a premium or discount to the domestic share price?

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5. How does GIFT-IFSC direct listing differ from the ADR/GDR route?

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Under the Direct Listing Scheme, eligible Indian companies can list actual equity shares directly on exchanges within India’s GIFT-IFSC , India INX or NSE IX , without creating bank-issued receipts through foreign depository and custodian banks. This eliminates foreign bank intermediary fees and simplifies the listing process, but it reaches a different investor base and operates under different regulatory conditions than traditional ADR or GDR programs.

Table of Contents

Quick Definition

What ADRs and GDRs Actually Are

How the Process Works End to End

Real Examples From Indian Companies

Key Features of Depository Receipts

ADR vs GDR: The Core Differences

Advantages for Companies and Investors

Risks That Require Careful Consideration

Practical Tips for Anyone Evaluating These Instruments

Common Mistakes Worth Avoiding

Who These Instruments Are Relevant For

Conclusion

Frequently Asked Questions