Even as the primary market heads towards revival, the grey market for IPOs has already become active. The grey market, which slowed down its activities due to slump in IPOs after uncertainty in the secondary markets, has picked up pace with most of the recently-announced IPOs like Sejal Architectural Glass, Birla Cotsyn, Somi Conveyor already demanding handsome premiums.
The IPO of Sejal Architectural Glass, which has a price band of Rs 105 to Rs 115, is commanding a premium of Rs 20, a return of 20% on the day of listing. The IPO of Birla Cotsyn, with a price band of Rs 15 to Rs 18, is trading at a premium of Rs 4 to Rs 5 to its potential issue price in the grey market.
However, the IPO of KSK Energy Ventures, Lotus Eye Care and First Winner Industries are trading at discounts in the grey markets.
The unofficial IPO grey market often decides the fate of IPOs and the price at which the company gets listed on the first day.
Padam Jain, director, investment banking and corporate finance, Anand Rathi Securities, said, “There are some section of investors who look up to premiums in the grey markets and investment in the issue but there is no evidence that the success of the issue depends upon these premiums. The IPO grey market is totally unregulated and its presence by no way influences the actual issue.”
Such activities have also sought attention of markets regulator Securities and Exchange Board of India and off late, the regulator is planning to take steps to curb the unregulated market.
Another Investment banker, on terms of anonymity, said, “Promoters and some speculative elements participate in the grey market to create an artificial demand and by looking at the grey market premium, investors put money into IPOs to learn that they have invested in a bad issue. As of now, only small issues are hitting the market, but as the bigger ones start tapping the market, we might see an increase in the grey market activities.”