Gulf Crisis, Trade Deficit Fears Blight Sentiment

The Skindia GDR Index and the DSP GDR valuation index sliding further by nearly 1.8 to 2.5 per cent.

The Skindia GDR Index fell by 2.60 per cent on September 3, when reports of the US air raids on southern Iraq came in.

Fears of an increase in trade deficit which might lead to a depreciation of the rupee and the possible increase in inflation sent the domestic markets tumbling by 2.19 per cent.

The market is keenly awaiting the launch of the two mega-GDR issues of SBI and Videsh Sanchar Nigam Ltd (VSNL).

According to reports, a full cabinet committee meeting is set to meet early this week to decide on whether VSNL should move ahead to raise funds through a GDR offering.

State Bank's GDR offering is likely to be in the region of $400 million.

According to reports from New York, there is still speculation over the size and structuring of the issue.

There are varying research studies carried out by foreign institutional investors in relation to the State Bank of India GDR offering, sources said.

State Bank will be the first Indian bank to tap the GDR market.

According to Skindia, the company may not have to reduce its issue size even if the Reserve Bank of India considers the GDR equity as foreign portfolio investment (FPI) and not as foreign direct investment (FDI).

The overall limit for foreign holding is 20 per cent. FIIs, according to reports, are currently holding just over 10 per cent on State Bank of India's present equity of Rs 474 crore.

According to the GDR monitor, assuming that the GDRs are issued at $7.75 (Rs 277.50), the number of GDRs and underlying shares issued will be 5.16 crore, resulting in an expanded equity of Rs 525.60 crore and FII holding will be Rs 99 crore.

This will be well within the 20 per cent ceiling.

During the week, eight GDRs gained, 28 lost ground and 26 remained unchanged in comparison with 36 gainers, 24 losers and two remaining unchanged in the underlying shares.

GDR premiums have continued to dip over the past two weeks, even while foreign institutional investors have restructured their portfolios to sell of the old stock and buy the GDRs of the same scrip.

Of the 62 GDRs, 50 were traded at a premium on September 5.

Ballarpur Industries commanded a premium of 74.16 per cent, while the United Phosphorous GDR commanded a premium of 51.47 per cent.

This was followed by Core Healthcare with 45.29 per cent.

Garden Silk offered the highest arbitrage potential (buy GDR and sell BSE share) of 11.73 per cent, followed by Sanghi Polyester with 11.37 per cent.

According to a Skindia Finance study, contrary to the general perception of the domestic markets following the trends of the GDR markets, there is very little correlation between price movement in the GDR markets and the price movement in the underlying shares the following day.

The BSE 30-scrip Sensex has a correlation of just 7.31 per cent and a beta of 0.19 with the Skindia GDR index for a period from October 1, 1995 to September 4, 1996.

The study shows that the highest co-relation and beta were in quarter 1 (Q1) at 18.13 per cent and 0.3252 respectively.

They fell to 1.85 per cent and 0.1123 in Q2, and fell further to 0.01 per cent and 0.0071 in Q3 but shot back to 15.08 per cent and 0.2106 in Q4.

Of the 63 shares only 21--which is a mere one-third -- have a correlation greater than 1 per cent with their gross depository receipts.

The firm has considered only those scrips which are actively trade.

These have an average daily turnover of more than

Rs 35 lakh.

Reliance leads on this score, with a correlation of 6.80 per cent and a beta of 0.30.