The result: the fall in GDRs of some of the most actively traded shares have been sharper than the domestic ones.

This is evident from the increasing price differential between the two markets. For instance, in the case of Hindalco, the GDR was traded at Rs 504, the local share price remained at Rs 548.50 on August 11, which led to a price spread of over 8 per cent.

Similarly, in the case of Larsen & Toubro, East India Hotels, Reliance Industries, Tata Electric, Telco and Wockhardt, while the fall in the underlying stocks has been about 2-3 per cent on an average, the GDRs have dipped by over 4 per cent on an average.

One of the main reasons for the FIIs shifting their focus to the GDR market is the sharp rise in the dollar value vis-a-vis most currencies. Besides, in the domestic market there is very little room for sale as thesensex has already dropped below the 3000-mark. Any further sale in the domestic market will depend on the dollar's appreciation vis-a-vis the Indian rupee. If the rupee remains stable, further sales at the current level of index will mean a loss to the FIIs, say brokers.

Eventhough the arbitrage between the GDR market and the domestic market is increasing, FIIs seem to have lost interest in this segment of the business.The positive correlation between the movement of the GDR market indices and the BSE-30 Sensex seems to be disappearing, feel market players.

"Conventionally the market players looked upon the GDR indices as a barometer to guage the sentiments of the foreign players and their trading strategy in the local markets," said Sandeep Shah of Kotak Securities.

"However, the pattern seems to have changed on account of crisis of confidence and the depreciation in the rupee," he explained in the light of the hectic sales pressed by the emerging market FIIs at the GDR markets where settlementbecomes comparatively easier, along with the advantage of the appreciation in the dollar value, in comparison with the currencies of the developing nations.

The figures available on the GDR index movement and the BSE-30 share index strengthens the basis of the argument. While the presentation of the union budget on June 1, unnerved the local players, the fall of 4.95 per cent in the Skindia GDR index on June 4, led to a continous fall in the BSE-30 share index which fell by 3.62 per cent to close at 3,417.89.

Similarly, on June 12 when the Skindia GDR index fell by 5.11 per cent to close at 636.94 points, the Sensex dipped by 5.81 per cent to close at 3,152.96 points on June 13.

However, the reasons for the fall were not the same. The local market fell on account of the payment crisis in the Bombay Stock Exchange and the follow up action taken by Sebi to curb short sales while the GDR markets reacted to the Asian market crisis.

However, on August 11 while the Asian market crisis saw the GDR marketindices touching a new low of 562.36 points, a net loss of over 8 per cent, the BSE-30 shares index declined by a meagre 0.66 per cent on August 12.

According to market players the increasing discrepencies in the movement of the GDR indices and local market indices was on account of the depreciating value of the rupee.