Mumbai: Foreign bourses, where the depository receipts (DRs) issued by many large Indian companies are listed, have punished the stocks more harshly than domestic stock exchange.
DRs are now trading at a significant discount to the price of their shares traded on the Bombay Stock Exchange (BSE) and the fall in their DR prices is sharper than the decline in their local shares between 10 January—when the bellwether Indian stock index Sensex reached its lifetime peak—and 19 March—the last trading day used for this analysis.
A Mint analysis of the stock movements of 14 large Indian companies that are also part of the 30-stock Sensex basket shows that DRs of 13 have fallen significantly more compared with the drop in their local share prices between 10 January and 19 March.
Drug maker Ranbaxy Laboratories Ltd is the only exception. The other drug maker on the list, Cipla Ltd, rose 1.90% on BSE while its DRs dropped 1.53% overseas.
DRs represent one or more stocks of a company traded on a foreign stock exchange. Many Indian companies with global ambitions have floated their shares on bourses in London, Luxembourg and New York to tap foreign investors.
The DR holders constitute part of a foreign holding in a company. However, unlike foreign direct investment (FDI) and on the lines of foreign institutional investors (FIIs), investors in DRs do not enjoy voting rights.
The Sensex has lost some 27% from its peak. The GDRs (global DRs) of Reliance Communications Ltd (RCom), the flagship unit of Reliance-Anil Dhirubhai Ambani Group, which has lost some 36% on BSE, has fallen more than 44% on the Luxembourg bourse. Similarly, GDRs of Reliance Industries Ltd, the largest weighted stock in the Sensex basket, is down 30.3% overseas as against its 28.6% drop on BSE.
“These are high beta stocks from a high beta market,” said the head of equity research at a foreign brokerage in India, who does not wish to be named. Foreign funds that accumulate such stocks during a bull run are the first to offload these in a down market condition, the analyst said.
The stocks of two biggest private sector banks ICICI Bank Ltd and HDFC Bank Ltd have lost 43.5% and 26%, respectively, in the local market during this period. However, the price decline of their ADRs (American DRs) is 51.3% and 32.4%, respectively.
The stock price of State Bank of India, the largest public sector lender, has dropped 32.7% abroad, more than the 29.5% meltdown that it has experienced on BSE.
Engineering firm Larsen and Toubro Ltd (L&T), Aditya Birla Group’s Hindalco Industries Ltd, two Tata group firms—Tata Motors Ltd and Tata Steel Ltd—and software companies Infosys Technologies Ltd, Wipro Ltd and Satyam Computer Services Ltd are the other Sensex companies whose DRs have fallen more than their local share prices.
Some DRs, including those of L&T, RCom, ICICI Bank, HDFC Bank and Tata Motors, are now trading at a steep discount to their local prices. This is in sharp contrast to 10 January when most of these DRs were trading at a big premium to their local share prices. In fact, except for two, all stocks in this pack were trading at a premium in the overseas market on 10 January. On 19 March, only one of them was trading at a premium.
The trend in DR prices reflects FIIs’ trade calls in the domestic market. In the first 10 days of this year, FIIs, the largest group of investors in the domestic stock markets, were net buyers of more than $430 million (Rs1,691 crore then). However, since then, they have net sold Indian stocks worth $4 billion, leading to a steep fall in the benchmark index. FIIs were net buyers to the tune of some $17.5 billion in the Indian market in 2007 when the Sensex rose some 45%.
The impact of foreign fund flows, however, is not identical in all markets. Take, for instance, the cases of Vietnam and South Korean markets. The benchmark Ho Chi Minh index in Vietnam has crashed 36.7% this year so far, even as FIIs have been net buyers of $441 million worth of stocks there. On the other hand, in South Korea, the Kospi index has fallen 18.5%, even though the FII outflow from that market this year so far has been to the tune of $16 billion.