Players Shy Away From Long-Term Commitment

Marketmen are not ready to increase their long- term exposure due to the prevailing market conditions caused mainly due to uncertainty on the political front.

The fresh buying support in GDRs remained weak and was limited to those which were trading at a discount (to take advantage of arbitrage) or those whose stocks had dropped substantially over the past fortnight.

During the week, eight GDRs gained, 16 lost ground and 38 remained unchanged in comparison with 11 gainers, 49 losers and two remaining unchanged on the domestic markets.

A further slide in the share prices saw the premium for the Indian GDR offerings go up further from 13.55 per cent on September 12 to 15.37 per cent on September 19. Ballarpur Industries, United Phosphorous and Core Healthier recorded the maximum premium during last week with 96.02 per cent, 63.48 per cent and 51.36 per cent respectively. Garden Silk offered the highest arbitrage (buy GDR and sell share) with 12.60 per cent, followed by Century Textile with 5.70 per cent and NSPCC Miocene with 3.98 per cent.

 

A recent study carried out by the international investor group Skindia Finance, reveals that the turnover of shares whose GDRs trade at a high premium and discount shows that they increase substantially over a period. The high volatility experienced by the markets over the past six weeks (August 9 to September 9) shows that the BSE Sensitive Index (-4.23 per cent) underperformed the Skindia GDR Index (-1.58 per cent).

Fluctuations in the GDR and share prices saw the Skindia GDR Index premium touch a high of 16.90 per cent on September 2 from a low of 6.90 per cent on August 16 and gaining 52.03 per cent during the above period. On an average 52 issues traded at a premium to their underlying share price. The GDRs of Ballarpur Industries, United Phosphorous andVideocon International traded at an average premium of 93.94 per cent, 49.88 per cent and 47.82 per cent respectively to their underlying shares.

Garden Silk, JCT and Century Textiles offered the highest arbitrage potential during the period. The average increase in the turnover of these six scrips was - Ballarpur industries (9.27 times), United Phosphorous (0.46 tomes), Core Parenteral (0.95 times), Garden Silk (2.75 times), JCT Ltd (3.47 times) and Century Textiles (8.37 times). Increased arbitrage opportunity resulted in swelling of volumes which can be attributed to the fact that shares at a discount to their GDRs attracted buying to their domestic price.

Among the new GDR issues in the pipeline, Maruti Udyog, India's largest car manufacturer, is planning a GDR issue to fund its Rs 2,370 crore modernisation-cum-expansion programme. According to information available, Gujarat State Fertiliser Company (GSFC) has shelved its $100 million GDR due to poor market conditions.

The SBI offering of $400 million was cleared last week by the cabinet committee on foreign investment. Roadshows for the GDR issue are expected to begin on September 21, while the issue will be priced by October 3, 1996, market sources said. "This could be the largest Indian offering for the year if the VSNL issue fails to come about and could determine pricing trends for future offerings," an FII source said.

In a related development, the finance ministry is understood to be finalising guidelines for Indian corporates wishing to tap the global markets through American Depository Receipts (ADRs). The guidelines will be on the lines of those issued for GDRs, marketmen said.ual="/incs/bottom.inc"-->