Grey market behaviour of unlisted shares suggests investors are suddenly turning cautious after the shock selloff that the broader market saw last week. Grey market premia suggest while investor appetite remains robust for quality issuances, their response to the new issues from here on will depend on how much the issuers leave on the table for them.
“We saw some investors’ reluctance in the Angel Broking IPO. They seem to be getting mindful of the fact that they need to separate the wheat from the chaff,” said Arun Kejriwal, Director of Kejriwal Research & Investment Services.
“Wherever the grey market signals that HNIs (high net worth individuals) can reap gains on leveraged trades, they tend to put in money,” he said.
The grey market is driven by HNIs. They usually put in bids for large chunks of shares in IPOs, far in excess of the portion reserved for them. This pushes up overall subscription levels for the issue and, in turn, lures investors to buy shares in the grey market at a premium.
The grey market premium for Computer Age Management Services ‘ (CAMS) Rs 2,242 crore initial public offer (IPO) has dropped to Rs 300 from Rs 500 earlier. It now implies a 24 per cent premium on the upper end of the price band for the issue at Rs 1,229-1,230.
For UTI Asset Management, the premium has halved to Rs 75 from Rs 150 earlier, dealers said. This now means a 13.5 per cent premium over the IPO price band of Rs 552-554.
Dealers attributed the decline in interest to the fact that stocks of listed asset management companies (AMCs) had performed poorly in recent times, as mutual funds face strong redemption pressure.
While shares of Nippon Life Asset Management have dropped 28 per cent on a year-to-date basis, its larger rival HDFC Asset Management has seen its shares decline 34 per cent in the same period.
The two issues that have been commanding substantial premia are Chemcon Specialty Chemicals and Mazgaon Docks. Chemcon, which was sold in the price band of Rs 338-340, quoted a premium of 107 per cent at Rs 365 on Friday.
State-run Mazgaon Docks has seen its premium double to Rs 135 from Rs 65 earlier, implying a 93 per cent premium over the IPO price band of Rs 135-145. The issue opens next week.
“Mazgaon Docks is being perceived as another ‘IRCTC’ in terms of pricing, and can deliver solid gains,” said one dealer who did not wish to be named.
Angel Broking, on the other hand, was thinly-traded in the grey market, and saw the premium turn into a discount of Rs 4.
Likhita Infrastructure, which hits the market next week with a small IPO to raise Rs 61.20 crore, was quoting a premium of Rs 12 over the issue price of Rs 117-120.
Listing gains going forward may be linked to the quality and potential of the particular business, and will depend on how much is left on the table for investors.
“We may see a slowdown in the IPO mart, if volatility continues to rule the market. Listing gains and subsequent traction may now correlate more with company merits and lucrative pricing,” said Ajay Bodke, CEO for PMS, Prabhudas Lilladher.
“When the markets do well, everything goes in the direction of the tide. It is when the tide wanes, the reality gets exposed,” he said.
Three IPOs are set to open next week on September 29 but lack of fresh filings is a matter of conern.
“It remains to be seen if the IPOs that are lined up in the coming week will see as strong responses as the ones in recent times,” said Pranav Haldea, managing director of primary market tracker Prime Database.
“The companies that are yet to launch IPOs may go back to the drawing board. They may rethink if they should hit the market now or defer plans,” Haldia added.
He pointed out that there have been only three new IPO filings with Sebi in the last three months, which was a concern.
“We should ideally see more such filings by the end of September, so that they can hit the market this fiscal,” he said.
Over the past one month, Happiest Minds Technologies and Route Mobile have seen stellar listing with 119 per cent and 168 per cent gains, respectively.