mumbai, April 11 -- It was past 10:30 at night in India when HDFC Bank announced that its part-time chairman Atanu Chakrabarty had quit, triggering a scramble in New York where traders dumped its American Depositary Receipts (ADRs). For the first time in nearly four years, HDFC Bank ADRs traded at a discount to its shares in India. When Dalal Street opened the next day, HDFC Bank fell by more than 5%, and extended losses to more than 7.5% over two sessions. As regulations eased, domestic liquidity deepened, and Indian markets integrated with global peers, the premium enjoyed by ADRs over Indian stocks has shrunk over the years, and often turned into a discount. The trend signals that the excitement for these instruments has faded, as direct access to Indian stocks became a breeze. Still, as the HDFC Bank episode shows, ADRs remain a flashing alarm bell for foreign portfolio investor (FPI) sentiment. In the early 2000s, Indian markets were marked by sharp information asymmetry, and remained relatively isolated from their global peers. For foreign investors at the time, these US dollar-denominated certificates traded in American exchanges opened a critical but often congested lane connecting to Dalal Street. Switch to present-the landscape has transformed. Multiple new routes have opened up for stock buyers, broadening foreign access, deepening liquidity, and wiring domestic markets far more tightly into global capital flows. Consequently, Mumbai now dictates price discovery, sidelining New York, with the allure of ADRs fading along the way. Sample this: ADRs of Infosys, the first Indian company to issue them, traded at a 32% premium between 2001 and 2008. It has since slipped into a discount, while ICICI Bank ADRs, which used to have a 9% premium, has converged to parity with its domestic shares. The trend mirrors across other large-cap ADRs, suggesting that the need for offshore access to these stocks has faded. Experts say high ADR premiums typically reflect restricted domestic access or limited liquidity. With direct access to Indian markets cumbersome in the early 2000s, ADRs carried a scarcity premium, along with a convenience fee for trading in US dollars on US exchanges. "For decades, fragmented KYC norms and rigid capital controls made US depositary receipts necessary as liquidity bridges," Anubhav Ghosh, partner of financial regulatory practice at Trilegal, said. That has since changed. The Securities and Exchange Board of India's (Sebi) liberalized FPI regime has streamlined onboarding into a single-window, risk-based process. Meanwhile, the non-debt Foreign Exchange Management Act (Fema) rules have expanded foreign investment limits and removed the need for prior approvals from the government or the Reserve Bank of India (RBI). Together, these changes have made direct onshore access faster, simpler and more scalable for global investors. "Most clients are now trading the onshore market directly on FPI IDs as the process of setting up a Sebi-registered trading ID has become consistently smoother and faster over time," Gautam Chhaocharia, head of global markets at UBS India, said. As Indian markets have scaled up and gained weight in global indices, direct stock ownership has become more efficient than accessing stocks through ADRs or swaps, he added. As a result, even as foreign interest in Indian equities strengthened, demand for ADRs waned and premiums steadily compressed. India's weight in the MSCI Emerging Markets Index has risen from below 5% in 2001 to a peak of 21% in September 2024, and currently stands at about 14%. This has triggered large passive inflows, as funds tracking the index must own underlying Indian shares directly, where liquidity is deeper and tracking error is lower. As India has opened up and integrated into global indices, its markets have also become more synchronized with global risk cycles, narrowing the gap between ADR and onshore prices. Mint's analysis shows a clear uptrend in the median 30-day rolling correlation of the Nifty 50 and the S&P 500 over the last 25 years, signalling deeper linkages between the two markets. Post-covid, correlations have risen to around 0.6 from 0.55 since 2001-2008, often spiking during global shocks such as the pandemic and the Russia-Ukraine war. A correlation coefficient of 1 suggests perfect correlation. At the same time, the rise of algorithmic and high-frequency trading has ensured that any price gaps are quickly arbitraged away, binding ADRs and domestic shares into near-parity....