Even though India’s primary market saw a lackluster listing of Coffee Day Enterprises last month, strong grey premium in the forthcoming IPOs of Dr Lal Path Labs and Alkem Laboratories is an indication of the confidence the market has placed in these companies. The IPOs of both companies start on 8 December.
Grey market is the unofficial agreement between an IPO investor and a stock broker which allows investors to lock profits before the stock lists. Under this system, shares allotted to IPO applications are sold by brokers without transferring the shares to their accounts. Since this is an unwritten accord between two parties, it entirely depends on the trust between the investor and broker. Nevertheless, grey premium acts as an efficient indicator of likely performance on listing.
For Alkem Laboratories, grey premium is in the range of INR150 to INR200 per share while the same for Dr Lal Path Labs is between INR70 to INR90 per share. Pharma player Alkem Laboratories has priced its IPO between INR1,020 and INR1,050 per share and the grey market activity indicates the listing will likely take place around INR1,400 per share for the broker to make money. Alkem is India’s fifth largest pharma player and has a strong profitability track record to boot.
Similarly, the IPO price band of Gurgaon-based diagnostic and pathology laboratories chain Dr Lal Path Labs is INR540 – 550 per share and the grey premium indicates favorable returns to investors. Retail investors are offered a discount of INR15 per share in the IPO which cushions the downside.
Growing enthusiasm in the primary market may be on account of successful listing of budget airline InterGlobe Aviation and fragrance maker SH Kelkar.