A year-end review of the price performance of the GDR market reveals that 64 Indian issues declined by 26.29 per cent on an average. Only 13 GDRs gained and the average 12-monthly returns for all the issues were -29.54 per cent on December 31, 1996 compared with -26.95 per cent a year back.
The yearly inflow from foreign institutional investors (FIIs) was stronger in the first half of 1996 than the second half. FIIs invested Rs 7,379 crore ($ 2,053.37 million) between January-June 1996, enthused by the high earning growth. The Skindia GDR Index rose 10.50 per cent from 74.07 per cent (January 1) to 81.85 per cent (June 28) and the BSE Sensex gained 21.89 per cent to 3812.52 per cent.
In the second half, uncertainty on the political front, introduction of a minimum alternate tax (MAT) and a severe credit squeeze led to a drop in earnings of corporates, prompting FIIs to invest cautiously in the second half of the year.
FII investments fell 54.8 per cent in the second half to Rs 3,335.3 crore ($ 928.02 million) and the Skindia GDR Index dipped 23.05 per cent to 65.81 per cent on December 31 and the BSE Sensex lost 21.6 per cent to close at 3085.20.
On December 4, the Skindia GDR Index touched an all time low of 51.56 and the BSE Sensex fell to its 3-year low of 2713.12.
But by the end of the year there were positive signals from the government, and this was reflected in market sentiments. The stock market and GDR indices improved in the last three weeks of 1996, with the BSE Sensex gaining 4.54 per cent and the Skindia GDR Index 3.33 per cent till January 2.
In 1996 there was a shift in the quality of companies which raised money from the international markets. Of the nine companies that raised $1,314.9 million, six were blue chip, accounting for 90.11 per cent of the total amount raised during the year. The average issue size ($ 146.10 million) was the highest in any year and for the first time issues were made at an average premium (1.19 per cent).
A study conducted by Skindia Finance to understand the trading frequency of Indian GDRs showed that all stocks of blue chip companies with large issues were at the top of the list in 1996. The five most frequently traded companies were from the `A' group (underlying shares) with issue sizes of above $100 million.
Hindalco was traded on 80.69 per cent of the days, Bajaj Auto 77.41, Telco 75.18, BSES 72.36 and L&T 68.89 per cent.
The five GDRs that traded the least were all from the non-specified group and these issue sizes were less than $50 million. Oriental Hotels was traded on 0.83 per cent of the days, Flex Industries 5.88, Jain Irrigation 7.65, EID Parry 9.01 and Sanghi Polyster on 9.95 per cent of the days.
Further, fund managers and FIIs are of the view that in 1997 the global offerings should be large-sized and highly liquid to ensure better pricing. The Skindia GDR Index during the last week of 1996 moved up from 62.11 per cent on December 19 to 68 per cent on January 2.
The list of GDRs which gained during the year was headed by M&M with 54.09 per cent, Bajaj Auto with 34.62 and E I Hotels with 33.33 per cent.
