MUMBAI, July 19: The political uncertainty in India dampened the sentiment in the overseas exchanges where Indian GDRs are listed. The decision by the DMK party to consider withdrawing its ministers from the Gujral cabinet sent the GDR and local markets into a tailspin during the week. The Skindia GDR index lost 4.68 per cent to 78.01 (July 14) in a single day and the BSE Sensex fell 2.24 per cent 4225.02.

According to Skindia Finance, the indices continued their downslide to close at their lowest levels in the last fortnight. As the GDR market unwound to a greater extend, premiums of 64 GDRs further declined from an average 17.56 per cent in the previous week to 16.23 per cent.

``Investors were worried about the continuity of the United Front government. Political uncertainties are disliked by investors worldwide. The main worry is about changes in economic policies,'' said an FII source, adding that political turmoil in Bihar has contributed to the woes of the Gujral government.

With foreign investors pressing for sales, 64 GDRs lost an average 2.53 per cent with 12 of them touching their 52-week lows. GDRs from cement, auto and aluminium sector were badly affected falling an average of 10.73 per cent, 8.51 per cent and 8.03 per cent respectively. Underlying shares of cement, fertiliser and auto fell an average 10.65 per cent, 7.11 per cent and 6.87 per cent respectively.

According to Skindia, widening spreads indicate declining liqudity in the security which could be either due to its small issue size (less floating stock) or lack of interest. A study to compare spreads between the bids and offers of GDRs shows that average spreads of 64 GDRs increased from 14.21 per cent in quarter one to 17.72 per cent in qauarter two of 1997.

Among the 64 GDRs, spreads of 31 (with an average issue size of $ 76 million) increased by an average 28.93 per cent. The remaining 33 GDRs whose spreads declined 18.06 per cent had an average issue size of $ 115 million, thus indicating that fund managers prefer trading in GDRs with greater floating stocks.

Spreads of NEPC Micon widened from 26.85 per cent in the first quarter to 50.20 per cent in the second quarter followed by Sanghi Polyester from 38.73 per cent to 68.35 per cent and Usha Beltron from 26.41 per cent to 46.27 per cent. ``Declining interest in these stocks can be seen from their negative six monthly returns of 66.67 per cent, 111.11 per cent and 60 per cent respectively,'' Skindia said.

Stocks which experienced greater trading activity included Dr Reddy's whose spreads declined from 8.78 per cent in the first quarter to 5.22 per cent in the second quarter, followed by Reliance from 2.48 per cent to 1.68 per cent and ICICI from 3.47 per cent and 2.42 per cent. They showed six monthly returns of 209.52 per cent, 105.26 per cent and 74.42 per cent respectively.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.