Arbitrage to push up Infosys prices

NEW DELHI, MAR 14: A 15 per cent premium on Nasdaq is expected to keep Infosys Technologies bulls on their toes in the domestic market. T...

NEW DELHI, MAR 14: A 15 per cent premium on Nasdaq is expected to keep Infosys Technologies bulls on their toes in the domestic market. The arbitrage opportunity (buy in one exchange and sell in another to make a profit) is likely to narrow, with a greater possibility of the domestic prices going up rather than the Nasdaq prices coming down.

The secret behind the surge in ADR price lies in the low quantity of paper offered by the company to international investors. The 18 lakh ADRs or 9 lakh shares offer is just about 2.3 per cent of the company’s current post-bonus equity of 3.2 crore shares.

Besides, the optimism is backed by the expectation of a surge in the fourth quarter net profit of the company. Besides, the overwhelming response from international investors, especially retail, is expected to keep the price firm on the Nasdaq.

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For the second day, after its historic listing on Nasdaq, Infosys’s ADR continued to trade at a premium of nearly 15 % to the domestic market price of Rs 3420. Though theADR closed at $ 46.62 on Friday , it was still way above the domestic price. Though the trading volumes on the second day on Nasdaq dropped to 6.23 lakh ADRs, the interest in the scrip was reflected in the day’s high of $ 48.75.

Trading volumes on its debut on Thursday at the Nasdaq soared close to 2.69 million ADRs or 13.47 lakh shares. This was way above the actual 1.8 million ADRs floated by the company. Trading volume of close to 2.7 mn ADRs at Nasdaq on Thursday was almost 10 times the combined average daily trading volume of around 2.7 lakh shares on theNSE and BSE.