Novmber, 16: Thanks to lack of liquidity, several GDRs are not moving in tandem with their domestic prices. Consider this: of the total 60 GDRs, only around 30 per cent are liquid. For instance, GDRs of DCW and HDC fell by 28 per cent and 12 per cent, the domestic prices of both these stocks have fallen by 50 per cent and 36 per cent respectively.

The Sensex and DSP GDR indices have fallen around 19 per cent during the period August 6-November 10, 1997. Thus, logically, share price of a company listed on different exchanges should also move in tandem. However, a study of price behaviour reveals that the same stock moves in different direction in each market. In fact, some scrips which have declined on the local bourses, have gained on the international bourses.

For example, the GDR price of Bombay Dyeing has recorded a gain of 12.5 per cent during August 6-November 10, 1997. During the same period, however, the domestic price of this stock has declined by 15 per cent.

Similarly, fall in stocks like DCW, Flex Industries, G E Ship, Hindalco, Jain Irrigation, Kesoram, Sterlite and Videocon International have been lower in the international markets as compared to the fall in domestic markets.

Interestingly, while some stocks have outperformed in the domestic markets, they have behaved in a different manner in the global markets. GNFC has outperformed the international market and its performance on the domestic bourses has not been par with the market. Companies like HDC, Hindalco, Indal, Kesoram, Orient Hotel SIEL, Sterlite, Indo Gulf Fertilisers and Grasim are also in this list.

Most of the GDRs are illiquid partly due to small size of their initial offerings and hence, the prices may not present an actual picture. DCW and Hindustan Development belong to this category. The initial offerings of companies like Flex Industries, Oriental Hotels, Usha Beltron, Jain Irrigation were below $40, which is very small amount from global standards.Some of the GDRs were popular in the initial stages. But, over a period of time, they have lost their glory. Financial performance, change in management perception, and controversy were responsible for this. NEPC Micon and Himachal Futuristic are among them.

Apart from the liquidity, different market perceptions and investment rational are also responsible for this diverging trends. Take the case of State Bank of India. While the local price for SBI dipped by 22 per cent, the GDR prices have lost 35 per cent during the same period. Since the stock is liquid in both these markets, the only reason for this is conflict of perceptions. Another factor which leaves its impact is the value of rupee. Hotel stocks are very sensitive to rupee fluctuations. With the fall in the value of rupee from Rs 35.73 on August 6, to Rs 36.61 on November 10, Indian Hotels and EI Hotels have outperformed in both markets. The performance, however, has been better in the domestic market.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.