GDRs fall by 7.52%

MUMBAI, NOV 8: Even though Indian markets were less affected by the worldwide meltdown in stock markets, shares (global depository receipts...

MUMBAI, NOV 8: Even though Indian markets were less affected by the worldwide meltdown in stock markets, shares (global depository receipts) of Indian companies listed on overseas exchanges showed a steep fall of around 7.52 per cent in line with the world markets during the fortnight ended October 6. On the other hand, underlying shares of these GDRs in the Indian markets fell by only 5.93 per cent.

The reconstituted Skindia GDR Index fell by 6.31 per cent to 983.51 on October 28, falling below its par value of 1,000. Despite a recovery in world markets the following day, the undertone in the GDR market continued to be jittery with the Skindia GDR Index falling a further 2.38 per cent to 960.05. Of the 64 GDRs, 22 touched their 52-week lows. The sharp fall in GDRs as compared to their underlying shares on October 29 led to the Skindia GDR Index Premium touching its all time low of 8.41 per cent.

The GDR market, however, regained lost ground in the following days due to renewed buying at lower levels with the Skindia GDR Index gaining 8.69 per cent to 1043.45 (November 3). During the fortnight (October 24 to November 6), not a single industry experienced a gain and 64 GDRs fell an average of 7.52 per cent as compared to a fall of 5.93 per cent in their underlying shares. Steel, cable and textile stocks were adversely affected in the GDR market. The fallout of the crash in Hong Kong and high volatility in global markets has increased the risk for those investing in emerging markets.

Hence, they wanted to see some GDR discount to GAIL’s domestic price to cushion against possible losses in volatile markets. The government had set a minimum price of Rs 125 while actual offers came in at around Rs 105-Rs 115. The issue was thus postponed more because of external factors rather than a negative view on the company or India. The withdrawal of the GAIL issue dampened sentiment in the GDR and domestic markets as marketmen felt it would be difficult for the government to meet its objective of containing fiscal deficit to 4.5 per cent. The government is now toying with the idea of disinvesting a part of the issue in the domestic market. Despite cancellation of GAIL’s GDR issue and turbulence in the Asian markets, MTNL is likely to sail through on time. “This will not only boost investor confidence, it will increase the inflow of foreign exchange and strengthen the rupee also,” said a market source.

In the meantime, Skindia Finance has revamped the index as economic reforms and liberalisation of the financial sector have brought about momentous changes in the capital market making it necessary to construct an index which is in tune with these changes. The new Skindia GDR index has a base date of January 2, 1995 and base value of 1,000. “Securities in the index are selected on the spreads between the bids and offer, ensuring high level of liquidity at any given point of time. Weightage of the index set are based on the total market capitalisation of the company. The index will be reviewed every quarter,” Skindia said.