Investing in a company does not always mean buying its shares on the stock exchange of the country where it operates. An Indian company may have its shares traded in the United States or other international markets through financial instruments known as American Depository Receipts (ADRs) and Global Depository Receipts (GDRs). These instruments allow companies to reach overseas investors while giving investors access to foreign businesses without directly purchasing shares on the company’s domestic exchange.

ADRs and GDRs are part of a broader category called depository receipts. They connect domestic companies with international capital markets and make cross-border investment more accessible. However, they also introduce risks involving exchange rates, regulatory requirements and differences in trading activity. For investors familiar with how a demat account works, understanding ADRs and GDRs is a useful next step in learning how securities are held and traded across countries.

This article explains the meaning of ADRs and GDRs, how they work, their differences, advantages, disadvantages and the factors investors should consider before investing.

What Are ADRs and GDRs?

ADRs and GDRs are financial instruments that represent shares of a company incorporated in another country. Instead of requiring investors to purchase those shares directly in the company’s domestic market, a bank or financial institution issues receipts backed by the underlying securities.

An American Depository Receipt (ADR) is issued in the United States and represents shares of a non-US company. These receipts are generally denominated in US dollars and may trade on American stock exchanges or over-the-counter markets.

A Global Depository Receipt (GDR) is a similar instrument issued in international markets, generally outside the United States. GDRs can provide access to investors in financial centres such as London and Luxembourg and are commonly denominated in internationally accepted currencies.

Both instruments serve a similar purpose: connecting companies with foreign investors without requiring those investors to buy the original shares directly on the company’s home exchange.

What Is an American Depository Receipt (ADR)?

An American Depository Receipt is a certificate issued by a US depositary bank that represents a specified number of shares in a foreign company. ADRs allow American investors to gain exposure to overseas businesses through US market infrastructure.

For example, an Indian company listed on the NSE or BSE may also have ADRs trading in the United States. American investors can purchase these receipts through eligible US brokerage accounts without directly participating in the Indian stock market.

Each ADR represents a particular number of underlying shares. One ADR could represent one ordinary share, multiple ordinary shares or a fraction of a share, depending on the company’s depositary arrangement.

ADRs are generally quoted and traded in US dollars. Their market value reflects the underlying company’s share price, the ADR-to-share ratio, currency movements and market demand.

Types of ADRs

ADRs are commonly classified into three levels based on trading access, reporting requirements and the ability to raise capital.

Level I ADRs: Generally trade in the US over-the-counter market. These programmes have lighter registration requirements and do not allow the issuer to raise new capital through that programme.
Level II ADRs: Can trade on major US exchanges such as the NYSE or Nasdaq, subject to applicable registration, reporting and listing requirements. They do not, by themselves, permit a public capital-raising offering.
Level III ADRs: Allow foreign companies to list ADRs on US exchanges and raise capital through a registered public offering.

Some companies also use other arrangements, including Rule 144A offerings for qualified institutional buyers.

What Is a Global Depository Receipt (GDR)?

A Global Depository Receipt represents underlying shares of a company and is issued by a depositary bank for investors in international markets.

GDRs are commonly associated with exchanges outside the United States. They enable companies to access investors across international financial markets through an overseas securities structure.

Suppose an Indian manufacturing company wants to attract investors from Europe. Rather than requiring those investors to purchase shares directly from an Indian exchange, the company could establish a GDR programme in an eligible overseas market.

Investors purchase GDRs through the applicable international trading system, while the underlying Indian shares remain with a designated custodian.

GDRs may be issued as part of a capital-raising transaction or created against existing shares, depending on the programme and applicable regulations.

How Do ADRs and GDRs Work?

Although ADRs and GDRs trade in different markets, their basic structure is similar. Both involve an issuing company, a domestic custodian and an overseas depositary bank.

The process generally begins when a company establishes a depository receipt programme under the applicable legal framework. Eligible underlying shares are deposited with a custodian in the company’s home country. An overseas depositary then issues receipts backed by those shares.

Investors can purchase and sell the receipts through the relevant overseas market, where trading access is available. Each receipt represents a specified interest in the underlying securities.

The main participants are:

Issuing company: The business whose shares are represented by the receipts.
Domestic custodian: The financial institution responsible for holding the underlying securities.
Overseas depositary: The institution that issues and administers the receipts.
Investors: Individuals or institutions purchasing the receipts in the foreign market.

Depending on the terms of the programme, investors may receive dividend payments and exercise certain shareholder rights through the depositary.

The government of India’s Depository Receipts Scheme, 2014 provides a framework for Indian companies to issue depository receipts in permissible foreign jurisdictions.

Example of How an ADR Works

Consider a hypothetical Indian technology company whose shares trade at ₹1,200 on the Indian stock exchange.

Assume the company has established an ADR programme under which one ADR represents two ordinary shares.

For this example, suppose the exchange rate is ₹90 per US dollar.

The value represented by one ADR would be:

Two shares × ₹1,200 = ₹2,400

Converting that amount into US dollars:

₹2,400 ÷ ₹90 = $26.67

Therefore, the approximate underlying share value represented by one ADR is $26.67.

If the Indian share price increases to ₹1,350 while the exchange rate remains unchanged, the underlying value becomes:

Two shares × ₹1,350 = ₹2,700

₹2,700 ÷ ₹90 = $30

The ADR’s underlying value has increased from approximately $26.67 to $30, representing a gain of around 12.5%.

However, its actual trading price may differ because of market demand, exchange-rate movements, transaction expenses and differences in trading hours.

This also explains why currency movements matter in international investing. A foreign security can produce different returns when measured in local currency and Indian rupees. You can explore this relationship in Alice Blue’s article on rupee depreciation and US stock returns.

ADR vs GDR: Key Differences

Although ADRs and GDRs share a similar structure, they differ in their primary trading markets, regulatory environments and investor reach.

Basis	ADR	GDR
Full form	American Depository Receipt	Global Depository Receipt
Primary market	United States	International markets, generally outside the US
Currency	Usually US dollars	Often US dollars or another accepted foreign currency
Trading venues	NYSE, Nasdaq or US OTC markets	Overseas exchanges such as London or Luxembourg
Regulatory requirements	Applicable US securities laws and SEC rules	Rules of the relevant jurisdiction and exchange
Target investors	Primarily US investors	International investors
Capital raising	Possible through qualifying programmes	Possible through qualifying programmes
Underlying asset	Shares of a foreign company	Shares of a company from another jurisdiction

The main difference is geographical. ADRs are designed for the American securities market, while GDRs are used to access other international markets.

Neither instrument is automatically better than the other. Their usefulness depends on the company’s financing objectives and the investor’s market access, costs and risk preferences.

Why Do Companies Issue ADRs and GDRs?

Companies may issue depository receipts for several business reasons. One important objective is access to overseas capital.

Businesses that depend entirely on domestic funding may face limitations in investor participation or capital availability. International markets can provide another route for raising funds, particularly when a company has ambitious expansion plans.

A company may also use a depository receipt programme to increase its visibility among international investors, build relationships with foreign institutions or establish a trading presence outside its home market.

For example, an Indian pharmaceutical company expanding into international markets may find value in reaching investors who already understand the global healthcare industry.

However, not every ADR or GDR programme raises fresh capital. A programme created against existing shares may increase trading access without directly bringing new funds into the company.

Capital is raised when the relevant transaction involves the issuance of new securities or another qualifying capital-raising arrangement.

Advantages of ADRs and GDRs

Access to international companies

Depository receipts allow eligible investors to gain exposure to foreign companies through securities available in their local or international trading markets.

An investor interested in an Indian company, for instance, may purchase its ADR through a US brokerage account rather than opening an Indian trading account.

Portfolio diversification

Investors can gain exposure to companies operating in different economies, sectors and currencies. International holdings may reduce dependence on a single domestic market, although diversification does not eliminate the possibility of losses.

For those comparing ways to invest internationally, exchange-traded funds (ETFs) offer another approach. Unlike an ADR representing one company, an international equity ETF may hold shares across several businesses.

Additional funding opportunities

For companies, depository receipts can provide access to international institutional and retail capital, subject to the structure of the programme.

A broader investor base may support financing plans and help companies develop a presence in overseas capital markets.

Familiar trading infrastructure

ADRs allow investors to trade eligible foreign-company securities through established US trading and settlement systems.

Similarly, GDRs provide access through the relevant international market infrastructure. Investors still need an account and permissions appropriate for the particular instrument and trading venue.

Foreign-currency exposure

ADRs and GDRs are generally denominated in foreign currencies. This can be useful for investors seeking international exposure, but currency movements can also reduce returns.

Disadvantages and Risks of ADRs and GDRs

Despite their benefits, depository receipts carry risks that investors should understand before making investment decisions.

Currency fluctuation risk

Exchange-rate changes can affect the value of a depository receipt even when the underlying company’s share price remains unchanged.

Suppose an Indian company’s share price is stable, but the rupee strengthens against the US dollar. The dollar value represented by its ADR may decline, assuming the share ratio remains the same.

The reverse can occur when the rupee weakens. Currency exposure may benefit or hurt investors depending on the direction of the exchange rate and the currency in which returns are measured.

Market and company-specific risk

An ADR or GDR remains exposed to the financial performance of the underlying business. Weak earnings, excessive debt, poor management decisions or declining industry demand can reduce its value.

International listing does not make a company safer or guarantee better returns.

Liquidity risk

Some depository receipts attract limited trading interest. Lower liquidity can create wider differences between buying and selling prices, making it harder to execute large transactions at favourable prices.

Regulatory and compliance risk

Depository receipts can be affected by changes in securities regulations, foreign investment restrictions, disclosure requirements and listing standards.

Investors should also consider how shareholder rights, corporate actions and investor protections differ between jurisdictions.

Costs and taxation

Depositary banks may charge administration, custody or other programme-related fees. Brokerage charges, foreign exchange conversion expenses and applicable taxes can further reduce returns.

Cross-border dividends and capital gains may also be subject to different tax rules depending on the investor’s residency and the security involved.

For Indian residents considering international securities, understanding cross-border tax obligations is important. Alice Blue’s guide to US estate tax risks for Indian investors discusses another consideration when investing internationally. The estate-tax treatment of a particular ADR or GDR must be assessed separately rather than assumed to match direct ownership of US company shares.

Are ADRs and GDRs the Same as Ordinary Shares?

ADRs and GDRs represent interests in underlying securities, but they are not identical to holding ordinary shares directly in the domestic market.

An investor who buys ordinary shares generally holds those shares through the local securities ownership and settlement system. A depository receipt investor instead holds an instrument issued by a depositary that represents the underlying securities.

Economic benefits, including dividends and exposure to price movements, can be similar. However, voting procedures, conversion rights, fees and corporate action arrangements depend on the deposit agreement and applicable regulations.

Some programmes permit investors to surrender receipts and receive underlying ordinary shares, subject to eligibility, operational procedures and regulatory restrictions.

ADRs and GDRs in India

Indian companies can use ADRs and GDRs to access overseas financial markets, subject to applicable laws and requirements.

The Depository Receipts Scheme, 2014 established a framework for the issuance and listing of these instruments in permissible jurisdictions. SEBI also issued a framework for depository receipts in October 2019.

Department of Economic Affairs+1

Well-known examples of Indian companies with ADR programmes include Infosys, ICICI Bank and Wipro. These companies illustrate how an Indian business can have securities traded through overseas depositary arrangements while maintaining its domestic corporate identity.

Investors should check the current listing status, ADR ratio and deposit agreement rather than assuming that all historical programmes remain active or retain their original terms.

ADRs and GDRs also differ from Indian Depository Receipts (IDRs). An IDR is issued in India and represents securities of a foreign company, whereas ADRs and GDRs allow securities of companies from another jurisdiction to be represented in overseas markets.

How Can Investors Evaluate ADRs and GDRs?

Before purchasing a depository receipt, investors should evaluate both the underlying company and the terms of the instrument.

First, examine the company’s revenue, profitability, debt levels and long-term business prospects. The overseas trading location does not replace the need for fundamental analysis.

Next, understand the receipt ratio. If one ADR represents multiple shares, comparing the ADR price directly with the price of one ordinary share would be misleading.

Investors should also review trading volumes, bid-ask spreads and the depositary’s fee schedule. A receipt with limited liquidity can involve higher execution costs even when the underlying business performs well.

Finally, consider currency exposure, taxation, financial reporting requirements and access through the intended brokerage account. Indian investors should verify the applicable overseas investment rules and whether their chosen platform supports the security.

Conclusion

American Depository Receipts (ADRs) and Global Depository Receipts (GDRs) help connect companies with investors across international capital markets. Both represent underlying securities, but they differ primarily in their trading jurisdictions and regulatory requirements.

ADRs provide access to foreign-company securities through US markets, while GDRs are commonly used in other international financial centres. Companies may use these instruments to attract overseas investors and, in qualifying programmes, raise capital for business expansion.

For investors, ADRs and GDRs can provide access to international companies without directly trading on their home-country exchanges. However, currency fluctuations, liquidity, depositary fees, regulatory differences and taxation should be considered carefully.

Understanding how the receipts are structured, what securities they represent and how their prices are determined can help investors make better-informed decisions about international exposure.

Frequently Asked Questions About ADRs and GDRs

1. What is the full form of ADR and GDR?

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2. What is the main difference between ADR and GDR?

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3. Can Indian companies issue ADRs and GDRs?

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4. Are ADRs and GDRs risky investments?

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5. Do ADR holders receive dividends?

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