Imminent Petrogoods Price Hike Dampens Sentiment

The poor performance by Indian blue chip companies and the proposed petroleum price hike dampened trading sentiment at the local and international markets by the end of the week.

The Skindia GDR Index fell for the second consecutive week with 64 global depository receipts losing 5.18 per cent on an average compared with 1.09 per cent in the underlying shares.

The greater fall in global depository receipts led to the average premium for Indian GDR offerings declining from 21.96 per cent to 19.63 per cent.

Lack of buying interest also pulled prices lower resulting in 12 global depository receipts touching their 52-week lows during the week.

 

Not a single industry gained during this period with the scrips from the steel sector losing ground by 10.65 per cent, power scrips sliding 8.27 per cent and fertiliser sector scrips dipping 7.77 per cent.

One of the poorest financial results were posted by Century Textiles last week.

The company scrip showed a decline in net profit of 98.66 per cent, touching a level of Rs 2.6 crore.

A drastic fall in cement prices, high costs of shipping and lower prices of pulp due to competition from cheaper imports were the main factors for the dismal performance.

The Century Textiles global depository receipt took a beating and fell by 15.3 per cent to $55 levels.

It fell further during the week to touch $52, making it one of the sharpest falls amongst global depository receipt offerings for the week.

Though the GDR was trading at a premium to the share price prior to the announcement of the results, the GDR is currently trading at a discount of 10.24 per cent to the underlying share.

The GDR dipped by 27 per cent from $72 on April 30 to $52 on May 8 and in the same period the underlying share, which came under sharp selling pressure, fell from Rs 2,464.50 to Rs 2,056, a fall of 16.5 per cent.

The other GDRs which lost ground sharply last week were J K Corp and SIEL, down 33 per cent and 28 per cent respectively.

Following the bad performance, the company shelved a large number of its planned projects and decided to postpone the launch of its second global depository receipt issue of about $125 million.

A study for the fiscal 1996-97 shows that the movement in the global depository receipt markets follows the domestic markets on the same day.

This is evident from the fact that the correlation of the Sensex being used to predict the Skindia GDR Index on the same day is 26.8 per cent compared with 2.6 per cent for a one-day lag.

This indicates that information transfer between the local markets and the international markets is speedy.

The study also reveals that the GDR Index is less volatile than the domestic index, with the Skindia GDR Index having a beta of 0.57 per cent with the Sensex.