To say that the euphoria in the domestic markets was limited as compared to that on the NASDAQ may not be wholly correct. Take the example of Infosys a stock that is listed both on the domestic as well as the NASDAQ bourse.
First, let's get the valuations on a comparable basis. The US ADR (Infy) represents only half of a Rs 5 paid up share that is represented by the domestic stock. This implies, that if both the ADR (American Depository Receipt) and the domestic stock are trading at identical prices, the ADR would have a P/E multiple twice that of the multiple prevailing in the domestic markets. The issue of whether we are undervaluing the stock (!!) or the US is overvaluing it should be left for the moment. What concerns us now is the relative price movements between the two – Infy (the ADR) and Infosys (the domestic stock).
The price movements, atleast on a day to day basis, seem to have tracked each other very closely. Infact, it is the domestic markets that have tracked the movements on the NASDAQ. The domestic markets have shown as much euphoria as the NASDAQ – to be fair, the pessimism has also been shares in equal measure. Mirroring the NASDAQ was a whole host of technology and media companies. The bubble, in earnest was transmitted to the domestic markets. The deflating of the bubble also followed.
Even after the recent correction on the NASDAQ (and the follow up on the domestic bourses), Infy continues to trade at a premium of 100% to the domestic stock. Suppose the domestic markets were to cover up this valuation gap, the BSE Sensex would definitely be once again heading towards its all time high.
Infy declined by over 8% on the NASDAQ the other day. Any guesses what will Infosys do on the domestic one? (No prizes for guessing this one!)
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