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Standard Chartered Bank IDR could be in for a volatile run till clarity is forthcoming on both two-way fungibility in Indian Depository Receipts and on taxation of participatory notes (P-Notes).
“After the Budget's two-way fungibility announcement, the SCB IDR price moved up with liquidity potential in IDR increasing. The difference between the equity price and IDR fell from 40 per cent to 25-30 per cent.
“But in recent times this difference has widened and if no further clarification comes forth from the Ministry of Finance then this difference might widen further,” said Mr Dhananjay Sinha, Co-Head, Institutional Research, Economist and Strategist, Emkay Global Financial Services Ltd.
Swapping option
Two-way fungibility allows IDRs to be swapped for the underlying stock listed overseas and vice-versa. So far only SCB has come forward to raise capital from the Indian capital market through the IDR route.
According to several banking sector analysts, the SCB IDR which had seen a huge rally post the Budget announcement allowing two-way fungibility in IDRs subject to a ceiling, is witnessing a possible correction. This could intensify further if the Government decides to tax P-Notes.
Several investors who have invested in SCB IDRs through P-notes are likely to be impacted if the Government decides to bring P-Notes under the ambit of GAAR, they said.
“In general there are concerns among FIIs because of uncertainty over General Anti-Avoidance Rules provisions. As a result, the IDR pricing is also impacted. A lot of unwinding is happening which is reflecting in holdings by FIIs which are reducing.
“This also applies to IDRs. Their price behaviour would be pulled by the positive factor of two-way fungibility announced in IDRs as well the negative factor of the GAAR provisions on taxation of P-Notes,” added Mr Sinha.
The stock of Standard Chartered Plc closed down 0.65 per cent to close at Rs 92.40 on Wednesday.
manisha@thehindu.co.in
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