DLF shares draw premium in grey mart

The grey market for the initial public offering (IPO) of real-estate major, DLF has become active following announcement of the dates and price band by the Delhi-headquartered company yesterday. The shares of DLF command an unofficial premium of Rs 26-28 a share in Ahmedabad, which is considered as the most active centre for grey market transactions.

The K P Singh-promoted DLF is raising Rs 9,600-odd crore through the IPO. The shares, with a face value of Rs 2 each, would be issued in the price band of Rs 500 and Rs 550.

The grey market is the unofficial market for IPOs and the premium or discounts indicate the level of retail interest in the public issue. It is also considered as an unofficial price discovery mechanism before the listing.

The unofficial premium for DLF in the grey market is lower, in absolute terms, compared with the recent IPOs such as ICRA Mindtree Consulting, Advanta and Global Broadcast Network, where the prices doubled in the first few days after listing. The share prices of ICRA and Global Broadcast Network doubled on the listing day itself.

The grey market premium of Rs 26-28 a share is not small, as the size of the DLF issue is large at 17.5 crore equity shares. The premium indicates that market players expect the retail portion of the DLF offer to be fully subscribed or even subscribed by two times, said a broker who did not want to be quoted as grey market is not legal.

The returns from the grey market are calculated in terms of money invested and the expected allotment of shares. For instance, if a retail investor puts in Rs 1,00,000 in the IPO application, he/she will get 100 to 200 shares at the lower end of the price band. A premium of Rs 26-28 assures the investor a return of 3-6 per cent within a time-frame of a month, the broker explains. All the profit (or loss) would be borne by the person who pays the premium.

The grey market exists in tier-two cities and areas where the investor population is sizeable, though such deals are not legally allowed. The market is vibrant in Ahmedabad, Unjha, Kolkata and some other cities.

The normal settlement in the grey market is trust-based and the brokers have the backing of big brokers who may be based in Kolkata or Mumbai. This market also offers multiple products.

The premiums for the IPOs are forward deals. There is also a product called koshtak. This product offers interest rates on the price paid per application form, depending on the demand for shares. The interest rates are paid for applying for the issue. The allotment and post-listing premium goes to the person who pays the interest rates.

The interest amount or price per application form for the DLF issue ranges between Rs 2,700 and Rs 2,900 for an application worth Rs 1 lakh.

There is a third product known as “subject to.” The retail investors in most of the IPOs, follow the HNIs (high networth individuals) and QIBs (qualified institutional buyers). Some brokers, acting on behalf of promoters, assure certain returns to high networth investors and if the listing price does not give the assured returns, the broker concerned makes good the returns assured.

Business Standard