Ahmedabad: In the wake of what happened in the stock markets on Wednesday, grey-market operators have decided to stay away from the informal exchange where initial public offerings (IPOs) of companies are priced and traded before these companies announce the dates for such issues and, sometimes, even before stock market regulator Securities and Exchange Board of India clears the issues.
On Wednesday, the Bombay Stock Exchange’s benchmark 30-stock Sensex opened 1,014 points below its Tuesday close of 19,051, dipped rapidly to17,307.9 and eventually closed at 18,715, losing 336.04 or 1.8%. The market was reacting to Sebi’s late Tuesday announcement of proposed curbs on certain routes foreign funds take to invest in India.
According to people who operate in the grey market, which is especially strong in parts of Gujarat, the 5 October IPO of Power Grid Corp. of India Ltd saw a revival in the grey market. Reliance Power Ltd’s planned IPO added fuel to this sentiment, with players trading in the stock even before Sebi had approved the company’s prospectus. Wednesday, however, saw prices fall in the grey market.
Thus, the premium on Reliance Power shares, which had risen to Rs60 on Tuesday, fell to between Rs46 and Rs48. On Tuesday, application forms for the shares were selling at Rs6,500-7,500 each. This fell to Rs6,000 Wednesday morning.
Soon after trading in the forms stopped completely (they cost nothing, but it is usually difficult to get forms for issues popular with traders such as brokers and grey-market players expect the Reliance Power issue to be).
“Everything now depends on what Mukesh Ambani announces on 18 October,” said one grey-market player, referring to Reliance Industries Ltd’s announcement of its results for the second quarter.
The grey market, or Koshtak, primarily involves three parties. The financier, who would give money to make an application and may or may not be interested in getting shares; an applicant, in whose name application would be made and who gets a nominal fee (premium) for making an application and issues the requisite cheque with the application; and the interested buyer of shares post-listing, who gives interest to the financier and gets shares transferred into his/her account post-listing.