The Scrip That Started It

IT was the $350-million State Bank of India (SBI) GDR issue that did the market in this time. According to market grapevine, the SBI price hammering by FIIs was initiated by Jardine Fleming’s overseas operation. Upset at not being given the mandate of managing the issue, they reportedly offloaded a lot of scrips in September. Though Jardine’s officials deny the accusation, what speeded up the fall was other FIIs joining the sellers’ brigade in an apparent bid to reduce the GDR premium and acquire the lucrative stock cheap.

To a large extent, the strategy worked. Once the selling gained momentum, domestic investors too joined in. Between September 26 and October 3, when the GDRs had to be priced, the SBI stock tumbled from Rs 260 to less than Rs 240 on the Indian bourses. The total turnover in the SBI share (368.71 lakh shares with a total value of Rs 705 crore) on both exchanges—the BSE and NSE—accounted for nearly 41 per cent of the total value traded on October 3. On October 3, the GDRs were priced at $14.15 (Rs 251.25), a meagre 5 per cent premium over the domestic price. SBI Chairman P.G. Kakodkar grudgingly admitted: "In such a bearish market, this is a good price. It’s far better than what we expected." The FIIs worked with the full knowledge that the scrip would not be able to garner support from domestic investment institutions, which are in the throes of a cash crunch. The low GDR premium started its own chain reaction in the domestic market. Many domestic holders of the scrip had taken a long view expecting a healthy premium. Disappointed, they started selling their holdings at any price. A bear run which continued even after the Reserve Bank of India ordered FIIs to stop trading in SBI. The next three days—October 4-8—saw the scrip shed Rs 30. Ironically, market operators feel the same FIIs who hammered SBI down will lead it up again.