The stock of the tobacco-to-hotels major ITC surged for the third straight session on the Bombay Stock Exchange (BSE) today partly due to the fungibility effect and partly due to the market buzz that fresh excise may not be levied on cigarettes in the Union Budget.
The scrip price wound at Rs 747.60, up 3.66 per cent from its previous close but not before touching an intra-day high of Rs 752.90. While on the National Stock Exchange (NSE), ITC share price rose 2.89 per cent to close at Rs 747.25 before touching an intra-day high of Rs 751.85.
Dealers said the scrip is being mopped up by large broking firms on behalf of foreign institutional investors.
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From Rs 701.30 on February 13, the scrip in the last three trading sessions has gained 5.7 per cent to the current levels. Volumes on the counter surged to 4.55 lakh shares on Friday, 15 February 2002, as compared to a daily volume of between less than 1 lakh shares to about 2 lakh shares of late.
Dealers also added, "ITC is said to be an imminent beneficiary of two-way fungibility of American depository receipts and global depository receipts". ITC GDRs on Friday, February 15 were quoted at premium to local underlying price. The GDR closed at $15.5, equivalent to about Rs 759, about 5 per cent premium to the closing price of Rs 721.20 on the BSE on February 15.
"We expect the activity in GDRs, which had vanished due to conversion of almost entire original GDR issue into local shares, to resume," the Mumbai-based Networth Stock Broking mentioned in its report on ITC today. The Reserve Bank of India (RBI) on February 13 issued guidelines for two-way fungibility of Indian ADRs/GDRs. The interest by overseas investors in ITC GDRs may resume as it is quoted at premium to local price.
ITC had issued GDRs in October 1993 for 9.02 million at $7.65 a GDR, aggregating $69 million. One GDR is represented by one underlying domestic equity shares.
Two-way fungibility implies that an investor can convert ADRs/GDRs into local shares and vice versa up to a limit of the original issue. No specific permission is required from the RBI for re-conversion of shares into ADRs/GDRs and such reconversion will be distinct from portfolio investments by FIIs, the central bank guidelines said.