The gray market is not regulated by Sebi and is generally viewed as a medium to invest in a company’s shares that are going through an initial public offering (IPO) before making their market debut. Trading on the gray market has always been trendy and not a new concept. In 2023, the IPO pipeline is expected to remain strong.
What is the gray market for?
Krishna Raghavan, Dy. Unlistedkart’s CEO explains that the purpose of the gray market is to offer investors the opportunity to buy and sell shares in a company before it is officially listed on an exchange. This can be useful for investors looking to get early into a new company or IPO before the shares are generally available to the public.
This market also serves as a way for traders to speculate on a company’s potential success and make a profit by buying shares at the IPO price and reselling them at a higher price in the gray market. Backers usually assume that the shares will be in high demand once they are officially listed on the stock exchange.
How are IPO stocks traded on the gray market?
Unlistedkart’s CEO explains that gray market refers to trading in a company’s stock before it is officially listed on an exchange. This trading usually takes place through informal channels such as over-the-counter transactions or via online forums and is not regulated by any official exchange. Gray market prices are determined by supply and demand and can be very volatile. Trading gray market stocks in India is done in cash and in person.
Currently, Kostak and gray market premium are the two well-known terms in the gray market of the initial public offering (IPO).
In India, Raghavan added that “the gray market for a company’s shares is active during the initial public offering (IPO). The shares are usually sold at a premium, with the price being determined by demand and perceived value. It is important to note that investing in the gray market carries a high level of risk as the shares are not backed by any regulatory authority and there is no guarantee of returns.”
Generally, a small group of individuals operate the gray market stocks, and trades are based on individuals’ mutual trust. He said, “Grey market share trading in India is legal and unofficial.”
Additionally, Raghavan said, “Traders and investors who believe a stock has the potential to be quoted at high valuations typically trade in gray markets. It is an excellent way to make money as you can buy stocks at a discounted price. Investors who missed the application deadline for an IPO can apply directly to stocks from the gray market.”
According to Prime Database, 85 companies submitted their offer document to SEBI for approval in 2022, compared to 128 the previous year. On the other hand, 27 companies almost want to move up €37,000 crore had their permit expire in 2022 and 7 companies plan to raise money €4,200 crore withdrew their offering document.
Commenting on the outlook for 2023, Pranav Haldea, Managing Director of PRIME Database Group said: “The pipeline remains strong €84,000 crore are currently SEBI approved. Another 33 companies are looking for an increase €57,000 crore awaiting SEBI approval (Of those 87 companies, 8 are NATCs looking to raise approx €29,000 crores).”
Haldea added: “The momentum seen in the last two months of 2022 is likely to continue, at least for the smaller IPOs. However, it may be a while before we see any larger deals, especially given the lack of sustained interest from FPIs.”
In 2022, 40 Indian companies were admitted €59,412 crore from motherboard IPOs, half of that €1,18,723 crore (all-time high) mobilized by 63 IPOs in 2021.
Disclaimer: The views and recommendations made above are those of individual analysts or brokerage firms and not Mint.
Know your inner investor
Do you have nerves of steel or are you losing sleep over your investments? Let’s define your investment approach.
Take the test Get all the business news, market news, breaking news and latest news updates on Live Mint. Download the Mint News app for daily market updates. More Less Topics
Comments are closed.