Grey market for IPOs turns dull, premiums on shares come down

Grey market for IPOs turns dull, premiums on shares come down
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First Published: Thu, Jul 19 2007. 12 26 AM IST
Updated: Thu, Jul 19 2007. 12 26 AM IST
Ahmedabad: The unofficial or grey market for initial public offerings (IPOs) is witnessing a slowdown, signalling what the players of unofficial market dub ‘correction time’, and indicating a possible fall in the stock markets. Most of the big operators and brokers in the unofficial market in Gujarat are staying away from share sales. “This is not a good sign for the stock markets as it could mean that the Sensex is heading for a correction,” said a broker who deals in both official and unofficial markets.
In the unofficial market, known as Koshtak, three parties are involved. The financier gives money to an investor to apply for the IPOs. The investor or “applicant” uses his PAN card (proof that he is assessed for income tax), demat account (electronic account where shares are held in dematerialized form, a must for stock market transactions) and a bank account, and is paid a fee for making such applications. In the third phase, an interested buyer gets the shares transferred to his account after the shares are listed.
Normally, the applicants—fronts for the real investors—earn between Rs2,500 and Rs4,000. Investors resort to such tactics to ensure allotment of shares—all IPOs have a portion, usually 30-35% reserved for retail investors. By applying through several appplicants, such investors are able to buy more shares than they would have otherwise been able to from an IPO. Only appplications for shares up to a certain value (Rs1 lakh) are treated as retail applications.
Players in the grey market say that the price being paid to every applicant has come down, from an average of Rs3,500 last month, when issues such as those of DLF Ltd, ICICI Bank Ltd, and Vishal Retail hit the market, to around Rs2,000-2,500. “The grey market is a barometer of the real market. A slew of IPOs have been lined up till the end of July, but here things do not look very bright,” said a broker in the grey market.
While the price being paid to an applicant in Central Bank’s IPO is Rs2,900-3,000, that being paid to an applicant in Omnitech InfoSolutions Ltd’s IPO is only Rs2,000.
In terms of premiums on shares in the grey market, Zylog Systems Ltd is the hottest scrip, according to an investor who plays the Koshtak market. “It is earning a premium of Rs350 per share on a price band of Rs330-350 per share offered by the company,” he added. The IPO of this Chennai-based IT company opens on 20 July and closes on 25 July. The premiums offered in the grey market on a share before it starts trading reflects investor expectations and is usally a good measure of how the share will perform soon after it is listed in the stock exchange.
The Omnitech InfoSolutions Ltd is trading at a premium of Rs60 per share (price band of Rs90-105), Omaxe Ltd of Rs60 per share (price band of Rs265-310 per share), IVR Prime Urban Developers Ltd of Rs55 per share (price band of Rs510-600), and Central Bank of Rs30-37 per share on the official price band of Rs85-102.
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First Published: Thu, Jul 19 2007. 12 26 AM IST
More Topics: Grey | IPO | Money Matters | IPOs |