Sbi Takes A Beating

The average of the closing prices from September 26 to October 3 works out to around Rs 250, while the GDR price, converted into rupees at Rs 35.60, is around Rs 251. Certainly not a 5 per cent premium.

A price-earnings multiple of around 9.5 to 10, depending on the earnings forecast for 1996-97, is cheap for SBI.

Major changes are at work in that organisation, and its chairman has termed it a turnaround story.

But the SBI need not blame itself for the poor pricing. One of the main reasons has been the governments decision to limit the foreign stake, inclusive of GDRs, to 20 per cent.

 

This would mean that foreign investors would not be able to increase their holdings beyond 20 per cent, thereby limiting demand.

The situation is analogous to a scrip coming up against the 24 per cent limit for FII holdings in the local market, when the price usually registers a fall in the absence of further FII buying. That seems to be already happening, with the SBI scrip falling further in the domestic market on Friday.

The clubbing of the GDR and local holdings for arriving at the 20 per cent limit, therefore, acted as a disincentive, apart from the fact that SBI was unable to exercise its full greenshoe option.

For ordinary investors, the fact that the 20 per cent limit has been reached means that the chances of the SBI scrip improving are slim.