IPO-bound cos fetch high premium in grey market

While they prepare to list, many of the companies have a huge grey market premium or GMP

A man walks out of the Bombay Stock Exchange (BSE) building in Mumbai, India. Credit: Reuters/Hemanshi Kamani

Its raining IPOs in the Indian bourses and a number of companies are set to list in the next few days. These include Devyani International which is the main franchisee for Pizza Hut, Costa Coffee and KFC, Krsnaa Diagnostics, multi-channel auto platform CarTrade among others.

While they prepare to list, many of them have a huge grey market premium or GMP.

CarTrade that closes subscription on August 11 has a GMP of around Rs 300, sources say, which effectively means the company is expected to list at around Rs 300 over the issue price between Rs 1,585 and Rs 1,618.

It is important to note that the current GMP of this company is half of what it was at the beginning of the month. At the starting of the month, the GMP of CarTrade was Rs 615.

Another company worth looking at is Krsnaa Diagnostics which is listing on August 11.

Read | Four IPOs to hit markets this week; aims to garner Rs 14,628 crore

The GMP as of August 9 was Rs 355, slightly lower than what it was earlier this month. Around August 3, sources say the GMP of this company was more than Rs 400.

Based on this, the company would list at over Rs 1,000 on the bourses as the issue price was between Rs 933 and Rs 954.

This IPO received 64 times oversubscription over the 71 lakh shares that were up for the subscription.

Devyani International, which had an IPO price band between Rs 86 and 90, could list above Rs 100 on the bourses with a GMP of over Rs 50.

“This is currently the price at which these companies are trading in the grey market prior to their IPO listing. While we expect them to list at those premiums, there could be a slight variation”, says the founder of a portal that deals with unlisted stocks.

A recent example of such a variation is Glenmark Life Sciences which had a grey market premium of Rs 80 and it was expected that the stock would list at around Rs 800 but the stock listed at Rs 750, a premium of 4% of the issue price.

IPO-bound companies seem to have huge traction in the grey market. Some of the other IPO-bound companies that are trading at a premium in the grey market are Exxaro Tiles, Nuvoco and Chemplast. A Number of IPOs have listed this year