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22.2 ndian onom ADRs can be sponsored or unsponsored. Abuse of DominAnce Sponsored ADRs are those in which the company A situation when a dominant firm/company actively participates in the process. The ADRs were (or a group of firms) is engaged in promoting first offered in the US in the 1920s. A number its market position through ‘anti-competitive’ of Indian companies have issued ADRs. Infosys business practices, such as—predatory pricing, Technologies was the first Indian company to use price squeezing, charging unreasonable prices, the ADR route. etc. Such practices hamper healthy competition The terms ADR and ADS are often in the economy and non-dominant firms face used interchangeably. The individual shares difficulties in their growth—they finally may shut representeted by an ADR are called American down their operations. In recent times, it was in Depositary Shares (ADs). To the company issuing news globally—the US company Microsoft was ADRs, it provides access to the American market. facing litigation (under ‘anti-trust’ provision) for A company can, therefore, raise additional its Windows Operating System. resources. To an American investor, it provides Though India used to regulate/restrict several the opportunity to invest in stock of companies such practices (under the MRTP Act, 1969), exact not listed in the US. Huge operational, custodial, use of the term ‘abuse of dominance’ was not in and currency conversion issues can come into play practice. But the Competiton Act, 2002 (which if the ADR route is not used. replaced the MRTP Act) has clear use of it—it defines such situation in clear terms. ADs conversion offer Activity rAte Conversion of local shares into American Depository Shares (ADS) of a company is called an The labour force of a country is known as the ADS conversion offer. It is managed by investment activity rate or participation rate. It is in per cent bankers, mainly large investment banks familiar and always a proportion of the total population of with Indian and global markets The offer allows the country—the economically active population. local investors to convert their shares into ADS This rate varies from one country to another and then sell it in US markets. The proceeds of depending upon several factors such as school the sale in the US markets is distributed to Indian leaving age, retirement age, popularity of higher investors in rupees after deduction of expenses education, social customs, opportunities, etc. incurred in the process. The company does not issue any new shares. Existing shares are converted ADrs into ADS. The scheme obviously can only be ADR stands for American Depository Receipt, offered by companies listed on the Indian and US which enables investors based in the USA to invest markets which is the case for many large Indian in stocks of non-US companies trading on a non corporates. US stock exchange. ADRs are denominated in This allows companies to have new investors dollars. Simply put, US brokers purchase shares and creates visibility on the US stock exchanges. of a foreign company, say Infosys (on behalf of They also satisfy the local investor by offering an their clients). ADRs are subsequently listed on US opportunity to sell their shares at a higher price stock exchanges. than available locally on the Indian bourses.