Fiis May Pick Up Shares As Gdrs Look Up
Last week saw the domestic global depository receipts arena staging a marginal recovery with the Skindia GDR index moving up on three trading days and some buying interest being witnessed at select counters.
This reversal of trend augurs well since the main reason for the continuing downturn in the rece-nt past was the huge discounts at which the GDRs were available. Floats from telecom, aluminium and pharma sectors were the only gainers appreciating by 6.05 per cent, 3.84 per cent and 2.31 per cent, respectively in the recent past. The past couple of weeks have thus thrown up huge arbitrage opportunities at select counters which has been milked by foreign institutional investors resulting in a sharp fall at the domestic bourses.
With the rupee weakening, foreign investors preferred to keep their holdings in the form of GDRs rather than underlying share. The narrowing gap between the domestic and GDR prices indicates fresh buying interest in local paper. The FIIs are, therefore, also expected to pick up stocks in the domestic market some time later.
A comparative study of the closing indices of the Skindia GDR Index and Bombay Stock Exchange Sensex over the past 90 days indicates that the gap between GDRs and the underlying shares has narrowed down. While the Sensex has dropped just over 17.2 per cent during the past 30 days (since June 18), the Skindia GDR index dipped by 22.36 per cent. However, a comparison of the same made over the past 60 days indicates that the Sensex dipped by over 20.80 per cent, while the Skindia GDR crashed by 31.9 per cent. The gap between the Sensex drop and GDR crash is even wider if one compares the two over the 90-day period. According to a dealer at a London-based brokerage outfit, the GDR markets yesterday remained lacklustre though there was no case of selling pressure. In fact, buying interest was witnessed at some counters like Indian Hotels (which held an intra-day price of $8.05) in London.
Although the Skindia GDR Index gained during the week, the 65 floats on an average fell by 2.12 per cent and the shares lost 2.36 per cent. According to sources, the prices had moved up at key counters on the previous day largely on account of 'marking up operations'. "This would signify that while the undertone is weak. There is a certain amount of bullishness which would stem from the fact that several valuations are currently seen as extremely attractive," a dealer said. During mid-week, the prices of key floats ruled steady as there was a view that the local markets had bottomed out and the sharp downslide would come to a halt.
"In the absence of more negative news, the investors at the GDR markets now await a change in sentiment which would induce some amount of buying activity in the coming weeks.'' According to top officials at Credit Lyonnais Securities Asia investment bank, while the privatisation programme of the government needs to be given top priority, attention will also have to be given on how to make the strategic sales for certain smallerPSUs. According to Hong Kong-based Richard Taylor, head of Asian investment banking operations of Credit Lyonnais Securities Asia, a balance will have to be struck between strategic sales and the global depository receipt route.
On the outlook for the larger PSU disinvestments which are in the pipeline, the Credit Lyonnais Securities Asia official said VSNL would seem to the safest bet.
"It is a widely-held enterprise and relatively liquid. It is better to get the best one out first, so that one can create the environment for the other offerings," the official said.