Grey IPO market shows signs of revival with Sensex scaling new peaks :: ET

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fter being in the doldrums for two years, the grey market for initial public offers (IPOs) is showing signs of revival with the Sensex scaling new peaks and the prospect for the primary market also looking encouraging. What's added to the general euphoria is the overwhelming response to the recent IPO of Snowman Logistics, triggering a revival in grey market premiums.



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Snowman Logistics, yet to be listed, is currently trading at Rs 20, or a premium of 43 per cent, to the higher end of the price band of Rs 47, while Sharda Crop Care, whose issue opened on September 5, is trading at a premium of about Rs 64, or 41 per cent, to the upper end of the price band of Rs 156, according to people familiar with the development.

With equity offerings like Shemaroo Entertainment, Lavasa Corporation, Monte Carlo Fashion and Adlabs Imagica on the cards, the focus is firmly on the Snowman listing later this week.

"To sustain the revival of the grey market, the Snowman Logistics issue, which was subscribed almost 60 times last month, has to be listed at a premium of over 43 per cent, which is the grey market premium as of now," said Arun Kejriwal, CEO, KRIS, an investment advisory firm.

The IPO grey market is an unofficial market where investors can spread bets ahead of listing on the bourses. If the shares list at a premium to the offer price, a participant in the grey market makes profit. Chances of loss are rare as the grey market demand determines investor's interest in most small and midsized issues.

The grey market went through a dull phase in the last two years due to limited opportunities. While in 2013, there were only three IPOs which raised just about Rs 1,284 crore, only two companies have raised Rs 379 crore so far this year despite a sharp rally in the secondary market.

Non-banking finance companies of big brokerage houses are aggressively extending margin funding to high net worth individuals (HNIs) for the IPOs with an interest rate of around 10 per cent annually for 9-10 days. IPOs generally get listed within 12 days from the closing date of an issue and, hence, returns are calculated on this period.

Normally, HNIs bid aggressively for an IPO based on the grey market price. In the case of Snowman Logistics, the HNI portion was subscribed 222 times as the grey market premium was about 43 per cent.

Surprisingly, for the Snowman issue, the grey market transaction took place at the maximum Rs 2-lakh size, but allotment will first be made for the lowest lot size of Rs 15,000 per application, said brokers.