Indian regulators have allowed foreign companies to raise capital from India. However, the restrictions on the kind of companies that can come to India will keep the major lot away.

With globalization increasing at a fast pace, capital markets across the globe are getting integrated. India too, after liberalization, has opened its capital markets to foreign investment. Also, Indian companies are now allowed to raise funds from foreign countries using ADRs and GDRs. In continuation of these capital market reforms. India has now opened its doors to foreign companies to float Indian Depository Receipts (IDRs) in the Indian stock market, taking one more step towards globalization. This initiative is expected to help Indian investors to share a portion of wealth created by outsiders, as it is possible for the Indian investor to invest in foreign companies like IBM, Microsoft, and Coca-Cola etc. sitting in India, provided these companies float IDRs. Now the obvious questions that come to mind arewhat are these Indian Depository Receipts; how do they work; who issues these IDRs and also whether they will be successful in our market or not.

IDRs are equity instruments issued in India for Indian investors by the companies, which have been incorporated abroad. These securities are rupee denominated instruments. In an IDR, foreign companies issue shares to an Indian Depository, which would, in turn, issue depository receipts to investors in India. In fact, the concept of an IDR is a mirror image of the memorable ADRs/GDRs. Like ADR and GDR, it is a negotiable instrument representing underlying securities of the foreign company. The only difference is that IDRs are required to be listed on the Indian bourses rather than foreign bourses and are rupee denominated unlike ADR, which is dollar denominated and GDRs, which are denominated in any other currency. IDRs are also expected to smoothen the progress of stock-swap transactions in which the Indian promoters have to be offered stock in foreign companies in excess of the current limit of $25,000.

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