Differential voting right shares up on index hopes

Some discounts to normal shares narrowed on Monday after a report that DVRs might be included in the Sensex and the Nifty

Differential voting rights (DVRs) securities were up an average of five per cent on Monday, compared to a one per cent rise in the benchmark indices. DVRs are securities that offer higher dividends but don't have the same voting rights as ordinary shares. They typically trade at a single-digit discount in developed markets but in India, the discount can be in excess of 50 per cent.

Some of the discounts narrowed on Monday following a news report that DVRs might be included as part of the BSE's Sensex and the National Stock Exchange (NSE)'s Nifty indices.

Exchange spokespersons did not immediately respond to a request for comments.

"There are a number of funds that invest in the companies, which make up the benchmark indices. Greater demand from these funds would lead to a narrowing of the discount that these shares trade at, compared to what is seen for such securities globally," said Vijay Kedia, managing director, Kedia Securities.

The Tata Motor DVR was up 5.28 per cent. The Future Retail DVR was up 5.37 per cent. Those for Gujarat NRE Coke and Jain Irrigation were up 5.18 per cent and 4.93 per cent, respectively.

DVRs in India trade at a discount ranging from 24 per cent to 54 per cent to ordinary shares. The gap between the two narrowed to four shares with DVRs. The typical discount for such securities globally is 5-10 per cent, according to Kedia.

The difference narrowed from 47.89 to 46.80 per cent for Future Retail, and 31.55 per cent to 30.7 per cent for Tata Motors.  Gujarat NRE Coke saw the discount narrowing from 54.47 per cent to 53.44 per cent, while the discount for Jain Irrigation dropped from 26.81 per cent to 24.35 per cent on Monday.

The BSE's Sensex was up 1.1 per cent, up 287.73 points; to close at 26,390.96. The National Stock Exchange's Nifty was up 1.06 per cent or 82.55 points to close at 7,874.25.

"Only the equity share with regular voting rights of the company are included in the index computation. The shares with differential voting rights are not included in the index computation," said the NSE spokesperson.

A request for comment was also sent to BSE. A spokesperson responded that the S&P Dow Jones Indices (S&P DJI), on whose policies BSE indices are based, declined to comment.