Easy Passage Seen For State Bank Of India Issue

The slide at the GDR markets comes at a time when the $400 million GDR issue from the State Bank of India is set to be launched. This has raised fears from fund managers with leading foreign institutional investors (FIIs) of whether the State Bank of India GDR will manage to gain a premium in these depressed market conditions.

The roadshows for the SBI GDR have already commenced and according to early indications, the issue is likely to receive a good response. According to marketmen, a premium for the SBI GDR in this market would send positive signals in reviving foreign investor confidence in the markets. But at the domestic markets, the SBI stock has witnessed a sharp fall in prices over the past three weeks.

This was mainly on account of selling pressure by select FIIs and local operators, which would make the pricing for the issue more difficult in view of the wide price fluctuation. The SBI stock has fallen by 10.18 per cent in recent weeks on the domestic markets from Rs 280 on September 6 to Rs 251.50 on September 27.

According to Skindia Finance, the issue would find it difficult to gain a premium but will sail through smoothly on strong fundamentals. The share price will, however, continue to record wide price fluctuations in the coming week.

The uncertainty over the mega-VSNL GDR issue ended last week with the government clearing the plan for the disinvestment of 7 per cent equity in VSNL and a slightly lower amount in Indian Oil Corporation (IOC). The offerings have been cleared for the public sector undertakings for retail sale either on the domestic markets or a GDR offering. With the VSNL plan cleared for the first tranche of disinvestment, VSNL is set to raise money through its GDR issue, but there is no clarity on when it could come about.

The share price of VSNL and Sail have fallen in recent weeks on account of reports of disinvestment plan from the government.

The GDR premiums for Indian offerings have fallen further, and of the 62 GDRs 57 were trading at a premium on September 26. Ballarpur Industries commanded the maximum premium of 109.61 per cent, followed by Jain Irrigation with 58.34 per cent and Videocon Industries with 51.8 per cent.

A study was carried out by Skindia Finance regarding the volatility of a share price before and after a GDR issue. The volatility of a scrip is the standard deviation (deviation of the price about its mean) of daily returns over a certain period of time. The study reveals that the volatility is higher in the pre-issue period.

The drop in the scrip's volatility can be attributed to the fact that following the GDR issue, the company has a diversified share holding pattern and a greater number of share holders. The study has r shortlisted the companies to those witha minimum average daily trading of Rs 75 lakh on BSE.

The volatility of the scrip in the last two years prior to the GDR issue has been compared with its volatility from the issue date till September 19, 1996. Reliance (6.28 per cent), G E Shipping (4.96 per cent) and Arvind Mills (4.57 per cent) were the most volatile scrips in the pre-issue period. The volatility in Bajaj Auto (-57.31 per cent), G E Shipping (-55.65 per cent) and Reliance (-51.91 per cent) dropped the most after the GDR issue. The volatility in SBI's share price has been 2.34 per cent as against 1.33 per cent in the Sensex in the last two years.