Indices Recover On Buying Interest

By the end of the week, the local markets showed a net loss of 1.05 per cent from 3424.63 on August 15 to 3388.80 on August 22. The trading sentiments for GDRs are, however, subdued following weakening sentiments at the Asian markets.

There was speculation within media circles on the effect of FII domestic buying (alongside GDR offerings) on the stake holding pattern for large Indian corporates. There was a theory that corporates feared a growing FII influence, through the actual buying and pick up through the GDR route. However, the finance ministry has clarified that there was no question of using the GDR route as a backdoor entry to see that the 24 per cent cap on FII holdings is breached.

 

According to the ministry, the offering through a GDR would constitute FDI and will be considered independent of the FII holding which remains fixed. A section of fund managers say there was no fear from large corporates in relation to the FII holding pattern, in relation to the issue of GDRs. The GDR offerings will be through the official conventional route, and if it falls within the particular list of industries, approval and clearance would have to sought through the RBI.

The sentiments at the GDR markets remained firm towards the end of the week as 32 gained, 14 lost ground and 15 remained unchanged in comparison with 22 gainers, 38 losers and one unchanged in the underlying shares. The premiums bounced back to relatively higher levels from a low of 6.9 per cent during the week, to close at 15.47 per cent. Of the 61 shares, 51 were trading at a premium to their underlying shares.

With the pool of money allocated to emerging markets drying up quickly, few fund managers have gained a large deal of leverage. To take advantage of the arbitrage potential, traders showed buying interest in GDRs of companies trading at a discount to their underlying shares. On an average 19.02 per cent of the issues offered an arbitrage potential during the week, the Skindia Indian GDR monitor said.

GDRs of fundamentally strong companies like Reliance, Finolex Cables, Century Textiles and Raymond quoted lower than their underlying share prices during the week. Long term investors hold onto their stock, thereby reducing floating stock and increasing demand. They bought GDRs of blue chip companies which have shown high appreciation since issue, growth in earnings and are trading at a premium to their underlying shares, Navin Aggarwal of Skindia Finance said.