Know about grey market price before applying in an IPO

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What does grey market mean?

Grey market term might sound somewhat sketchy to those newly walking through the various circuits of investments. Hence, to put this matter in perspective, let us understand what the term “grey market” actually translates to.

Simply a grey market is a marketplace where items are traded outside the proprietor’s authorized marketing channels. In terms of investments, the grey market is an unofficial channel. In such channels buying and selling of a company’s shares take place. This usually happens before they issue an IPO i.e. Initial Public Offering.

The advantage the of the grey market to investors?

In grey market stocks can also be bought at lesser prices than the official distribution channels. This is the main advantage of trading shares in the grey market. In the share market world, these stocks are the freshly issued ones. They are being sold prior to their official availability. And yes, this is illegal as by the law of the land.

With reference to the share-bazaar, this marketplace is often called as the ‘parallel’ market. In recent news from Mumbai, there are alarming reports of all bets being off in the grey market due to the disappointingly low listing of the Power Mech Projects that has halted all betting in the share bazaar for Initial Public Offers (IPOs). There are also reports of bets being called off due to this sluggish market status.

Grey market in share market context

As discussed previously, these markets are the places where the company shares that are raising funds via IPOs are marketed ahead of their listing. The punters then later deliver their shares and settle their trades after the listing has been allotted on the bourses.

Prabhat Dairy examples of grey market prices

An active grey market operator from New Delhi recently stated that there are more sellers of bets in the market. If they offer them at highly discounted prices then the brokers accepting the wager will have to directly pay from their own pockets. This is far from being ideal and reaped havoc on Tuesday’s parallel market with Prabhat Dairy lowering its share sale rates to INR 115-126 per share all while extending its issue closure by 3 days.

This spread panic amongst betters of Mumbai, Gujarat, and Delhi and Rajasthan markets. Prabhat Dairy is in the business of milk products manufacturing. Its issue was quoting about 8 to 1o percent premium to its superior end of price group. With this Prabhat Dairy strategy, some believe that there is no demand for small company IPOs in the market. Moreover, it gave hint that the future IPOs listing will probably be at a lower price range.

Power Mech Projects examples of grey market prices

On the other hand, Power Mech Projects raised a fund of INR 273 crore. Also, it witnessed oversubscriptions amounting to 38.12 times. But in a contradicting scenario, its shares in the listing did witness a sharp descent. This led the Power Mech to discount their listing. They reduced from INR 640 crore to INR 585.3 crore. This is a significant reduction of 8.5 percent. This also affected other IPOs. Sadhbhav Infrastructure, Navkar Corporation, Pushkar Chemicals and Fertilizers, all witnessed a near wipeout.

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