EIGHT MONTHS THAT CHANGED THE STOCKS WORLD

LOST IN TRANSITION

ICICI Bank stock falls to 2-year low Nishanth Vasudevan MUMBAI
    SHARES of ICICI Bank fell to a two-year low on Monday, as the lack of clarity over the bank's losses on its overseas investments — mainly in debt paper issued by global financial giants, triggered another bout of selling. In addition to these concerns, analysts and brokers said the stock is being pounded for being on the portfolio of most foreign investors, who have stepped up selling in Indian equities in recent weeks.
    "In the bull run, the stock was among the most favoured among foreign institutions due to its bellwether status in the Indian banking sector. So, it does not come as a surprise that the stock has taken the maximum beating, especially when they have turned bearish on India," said a banking analyst at a foreign broking house. Analysts said foreign ownership in ICICI Bank is close to 70%.
    Analysts said the ownership pattern of ICICI Bank and market perceptions of the bank's riskier asset portfolio has resulted in several investors shifting to India's largest bank, SBI, in recent months. In the past week, ICICI shares have fallen roughly 22%, as against the Sensex's decline of 10% in the period. On Monday, the stock ended 12% lower at Rs 493.30, off the low of Rs 483.
    Derivative analysts said the revival in ICICI stock on Monday was marginal, in the absence of shortcovering, an indication that traders are expecting further decline in it. The build-up in ICICI Bank futures contracts has been mostly short positions.
    "Institutions seem to be the dominant short-sellers in ICICI Bank. Retail investors usually cover short positions, when there is a sharp intra-day decline such as the one on Monday, as they are happy with smaller profits," reasons Geojit Financial Services head of technical and derivatives research, Alex Mathews. He expects the stock to find support at Rs 475, breaking which there could be sharper downside, he added.
    Investors now await the private bank's July-September or second quarter earnings to gain a sense of its losses from global investments. Enam Securities estimates ICICI Bank's overseas investments at close to $5 billion, a substantial portion (around 60%), of which is invested in various US & European Banks.
    Merrill Lynch, in its September quarter earnings preview report for banks, said: "The total MTM (mark-to-market) hits on its overseas investments (including to global financials) could vary from $100 million to $250 million; but that hit would be on its London subsidiary. Hence, to that extent it has to be captured through the book value (impact is Rs 5-8/share)." A finance ministry official was quoted recently by one of the wire agencies as having said investments in instruments of financial giants like Lehman Brothers and AIG has led to ICICI Bank alone losing Rs 309 crore. In its attempts to soothe bruised investor sentiment, ICICI Bank, in a statement to stock exchanges on Monday, said 98% of its UK subsidiary's non-India investment book is rated investment grade and above.
DR turnover halves to $8.14 billion Shailesh Menon MUMBAI
    THOUGH depository receipts of Indian companies listed on overseas bourses are still trading at a premium, there has been a sharp drop in trading volumes. While negative sentiment towards Indian share persists, the fall of blue chip investment banks has aggravated the situation, opine experts.
    In absolute terms, trading turnover has already halved over the past nine months, with experts fearing September (no data available) to be the worst month with respect to demand for depository receipts (DRs) of Indian companies. To get an idea of the dip in trading volumes, in January, this year, the total value of DRs transacted stood at $16.52 billion. Since then trading volumes have more or less fallen every month (except in March and July), with March logging $11.23 billion, May witnessing $8.67 billion worth of DR trades and August seeing a further drop to $8.14 billion.
    "Investor-interest has reduced considerably as a result of falling domestic market. Institutional buying (in overseas markets) has come down significantly with fresh investor money (into funds) coming down to a trickle over the past six months," said Instanex Capital Consultants CEO Gautam Chand, adding, "the fall of global banks has also resulted in falling turnover of depository receipts."
    Depository receipts (DR) represent stocks of a company trading 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.
    Ironically, it was in the first quarter (January-March) of the current year that the trading turnover of Indian companies on International Order Book (trading platform on LSE that lists Indian GDR-global depository receipts) had clocked a 94% year-onyear rise to a record $3.3 billion. Reliance Industries, SBI, Indiabulls Real Estate and L&T were among the scrips that witnessed robust trading activities then.
    "Most of the trading in DR segment is done by market makers. The trades are taken on the prop books of bulge-bracket investment banks. But with most global banks suffering huge sub-prime losses, prop book dealing has been restricted or almost come to an end (as in the case of fallen banks — Bear Stearns, Lehman Brothers and Merill Lynch)," said an investment expert who advises a handful of foreign portfolio investors in India.
    According to a study conducted by Instanex, of the approximately $15 billion worth of Indian equities traded abroad, almost 73% is in American Depository Receipts (ADRs). ICICI Bank is the toptraded ADR by far, accounting for 36% of total ADR turnover (buy + sell). In case of GDRs (listed on the London Stock Exchange), the top five GDRs account for 83% of traded value of the 23 frequently-traded DRs in London. Reliance Industries is amongst the top-traded GDRs, accounting for 47% of traded values in Indian DRs there.
    'No more significant fall'
New Delhi: The government does not expect the stock markets to fall significantly below the levels witnessed on Monday, when the benchmark Sensex plunged by nearly 700 points during its intraday trade. "We do not expect any major dip beyond this (level)," secretary, department of economic affairs, Ashok Chawla said. He added that low sentiments in the markets was the fallout of the effects of the global markets. The BSE barometer on Monday went low by 506.43 points at 12,595.75, a level last seen on July 16. The all-round selling pressure gained further momentum after reports poured in that the US financial crisis was spreading in the European markets. — Our Bureau