1. A number of Indian companies actively trade on the London and New York Stock Exchanges (NYSE) and due to the time differences, market news, sentiments etc a number of times the prices of the DR(Depository receipt) trade at discounts or at a premiums to the underlying stock.
2. This fact presents an arbitrage opportunity, where an individual can buys the DR abroad and sells the same stock in India at a higher price (the difference being the profit) and can pocket the same.
3. Same DRs trade during India market hours offering a live arbitrage opportunity. As there is very little risk in such trades the gap between the DR and underlying stock is minimal.
4. DRs which trades in the US markets offer better gaps, but there is the overnight risk to be factored in. Hence the fund manager must take into consideration the local market conditions before buying the stock in the US, as he/she must be confident of the selling off the stock the next morning in India at the profitable gap.
5. Once the stock is bought, arrangements are made to deliver the stock in India, which involves several procedures (stock is borrowed at times for this). Once the stock is delivered in India the proceeds are allowed to be repatriated and the process repeated.
6. There are some stocks which are also allowed to be bought in India and converted into the DR forms, which is attractive if the DR is trading at a premium to the Indian stock price.
7. However it will be better if an individual leave this strategy to a reliable fund which is dealing in it to avoid getting entangled in the nitty gritties of overseas arbitrage opportunity.
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2. This fact presents an arbitrage opportunity, where an individual can buys the DR abroad and sells the same stock in India at a higher price (the difference being the profit) and can pocket the same.
3. Same DRs trade during India market hours offering a live arbitrage opportunity. As there is very little risk in such trades the gap between the DR and underlying stock is minimal.
4. DRs which trades in the US markets offer better gaps, but there is the overnight risk to be factored in. Hence the fund manager must take into consideration the local market conditions before buying the stock in the US, as he/she must be confident of the selling off the stock the next morning in India at the profitable gap.
5. Once the stock is bought, arrangements are made to deliver the stock in India, which involves several procedures (stock is borrowed at times for this). Once the stock is delivered in India the proceeds are allowed to be repatriated and the process repeated.
6. There are some stocks which are also allowed to be bought in India and converted into the DR forms, which is attractive if the DR is trading at a premium to the Indian stock price.
7. However it will be better if an individual leave this strategy to a reliable fund which is dealing in it to avoid getting entangled in the nitty gritties of overseas arbitrage opportunity.
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