Following the share allotment of Paras Defence IPO, investors are eagerly looking at listing of India’s most subscribed IPO. Since the offer was subscribed by a whopping 304 times, it is obvious that more investors are disappointed than happy with allotment. Meanwhile, Paras Defence listing estimate points to a flying start according to grey market.
According to the latest grey market rates as on 29 September, the IPO is commanding a premium of INR230 per share. This means that the stock is expected to list around INR405 apiece, up 131% from the offer price of INR175 per share. Without doubt, this will be impressive return and going by the grey market trends so far, there are not likely to be nasty surprises. As we can see in the daily GMP movement, the IPO managed to keep its grey premium around INR200 per share without major fluctuations.
Paras Defence Listing Estimate: HNIs not so happy
While the IPO is likely to see a bumper listing and successful retail investors will likely make money, it is not the same case with HNIs. Since the offer saw record oversubscription of 927.7 times in HNI category, the funding cost is going to be quite high. To be precise, the HNI funding cost at a bare minimum interest rate of 8% is coming at INR249 which means that HNI investors will lose money if the stock lists below INR424 per share. This funding cost increases to INR280 per share at a more realistic interest rate of 9%.
It is clear that despite Paras Defence listing estimates of over 100% gains, HNIs are pretty much on the borderline. Thankfully, the selling pressure is likely to be absorbed since the offer size is quite small. One real possibility is that the stock is chased after listing in which case it can go much higher since the free float (shares available for buying and selling) will be quite less. This playbook has been used many times in IPOs but investors should be mindful of the fact that valuations will be grossly out of balance after listing gains of over 100%.