Punters shun REC issue, stay off grey market

A severe credibility crisis has rocked the infamous grey market for initial public offers (IPOs). The grey market was gaining prominence for price discovery among investors till the debacle of Reliance Power (R-Power) IPO.

A poor debut by five IPOs that followed R-Power, including OnMobile, J Kumar Infraprojects and Cords Cable, which listed below the grey market's expectation, has forced investors to shy away from grey market deals.

The loss of confidence among traders was evident by the fact that punters chose to stay away from betting on the public issue of Rural Electrification Corporation (REC), even while it attracted a grey market premium of Rs 24 till the issue closed for subscription last Friday.

Not more than five lakh shares were traded in this unregulated market, generating a turnover of a measly Rs 2.50 crore, according to dealers. Under normal circumstances, such a public sector issue would have recorded at least Rs 100 crore worth of turnover in the grey market.

Sources said the premium in the Rs 1,600-crore REC public issue, which was subscribed by 28 times, was rigged by vested interests, who wanted to attract retail investors' attention towards the IPO. However, the premium dropped overnight by 50 per cent to Rs 12 as soon as the issue closed as there were no buyers later.

A credibility crisis erupted in the grey market as punters refused to honour deals in the R-Power issue after they suffered heavy losses.

Even after two weeks of listing and a proposed bonus announcement later, the stock is still struggling to close above its issue price of Rs 450, while it was trading at a premium of Rs 350 before its debut as the grey market expected it to list above Rs 750.

If sources are to be believed, over Rs 250 crore is still stuck in this market as players are refusing to honour deals in R-Power.

Besides, the IPO of OnMobile, which was traded at a premium of Rs 100 to Rs 105 in the grey market till the issue closed, was listed on a par to its issue price of Rs 440. The stock hit a low of Rs 421 and a high of Rs 579 intra-day before closing at Rs 521.90, below the grey market anticipation of Rs 545.

Not many could sell all their shares at a profit.

Similar was the case with KNR Construction, another IPO that followed R-Power.

On February 18, KNR Constructions' shares listed at Rs 180 against the issue price of Rs 170 and closed at Rs 154.35. The grey market anticipation was that it would list above Rs 185.

Others that were hit by the same fate are IPOs of J Kumar Infraprojects, Cords Cable, Bang Overseas and Shriram EPC, which were listed and closed much lower than their grey market premiums.

Stock market experts are of the view that this has come as a real eye-opener for those bidding for IPOs on the grey market hype.

"While most who had borrowed money on interest for listing gains sold shares at losses, some who do not want to book losses stuck as markets are swinging wildly," said a broker.