Sep 24, 2024 03:05 PM IST
Kotak Mahindra Mutual Fund’s Nilesh Shah argues that reliance on grey market premiums for IPOs is misguided.
Grey market premium (GMP) is something IPO investors in India watch out for. But Kotak Mahindra Mutual Fund MD Nilesh Shah said that choosing to believe on GMP of IPOs is similar to forming a government right after watching the exit poll results. Nilesh Shah said, “The IPO grey market can be incorporated as a when-issued market on the stock exchange. Let the stock exchanges floor drive IPO price discovery within the ambit of regulations.”
He told Economic Times, “Many times IPOs get subscribed because there is a grey market premium going on. Now why should we allow this grey market premium to influence IPO? If you really want a grey market premium to influence investors, then why not create a when-issued market? Let the stock exchanges drive the IPO grey market, it will be within the ambit of regulations. And then nothing will work on rumours. All activities will happen within the market framework.”
On whether GMPs can be manipulated ot not, he told the outlet, “In the grey market, we don’t know the volumes and who are the players. People can give any number on WhatsApp messages. They are so naive that they believe those numbers. Now this is like forming a government on exit polls and not on actual results. You cannot make that mistake.”
He explained, “In equities, for example, if a Swiggy IPO is coming out then it will start trading on stock exchanges before listing. Trading will happen using margins and settlement will be done accordingly. In the grey market you can see the price but who is there to guarantee settlement? Who knows how many settlements have been done? Instead of playing underground, let’s make it formal. Let’s turn this grey market into white. Many times, an IPO gets through on the basis of the grey market, which is not fair.”