The grey market premiums for Reliance Power Ltd. are now witnessing a sudden downturn in line with a sharp fall in key benchmark stock indices.The grey market premium, which was quoting at Rs 450 a day before the RPL issue opened, has now slipped to Rs 350 as investors have toned down their listing price expectations from Rs 900 a share to Rs 750.The grey market is an unofficial market for IPOs and acts as a price discovery mechanism before an issue opens for subscription and mostly operates in Ahmedabad, Rajkot, Kolkata and a few other smaller cities.According to grey market operators, apart from a falling market, the premiums start falling towards the end of the subscription date as players start booking profits in the grey market itself. This pattern was also observed in past high-profile IPOs including Reliance Petroleum, DLF and Mundra Port SEZ.Grey market players include big brokers, high net worth individuals and other market operators. These players, who started buying shares from those who have applied for the issue, are booking profits in the grey market itself, rather than waiting for the shares to list on the stock exchanges.The fact that the Sensex has fallen nearly 900 points in the last two days coupled with investors' requirement for immediate money has led to this trend, said a broker.The grey market works in the following way: Once the IPO allotment is finished and the shares get listed, brokers 'collect' these shares from the accounts of the "investors" and transfer it to their accounts.Once trading begins, the applicant transfers the shares into the grey market operators' account through a block deal on the trading screen. The shares are transferred on the pretext that these shares would be sold in the open market, just as most IPO investors do to earn the listing premium. Later, these shares are transferred to the person who wants to corner a sizeable chunk of the issue.However, by drawing parallel to the IPO of Mukesh Ambani-promoted Reliance Petroleum Ltd's IPO in 2006, the price of which recorded a steep fall after listing at Rs 101, some of the genuine HNIs making applications with margin funding are now treading a cautious path.
