The second IPO of January, Indigo Paints IPO will open on January 20, 2021. Investors will have the time till January 22 to subscribe for the offer. But before the issue opens, Indigo Paints shares are trading at 55 percent premium in the grey market.
What Is A Grey Market?
First off, the grey market shouldn’t be confused with the black market or grey economy. Let’s look at the definition of each, so we don’t get confused in the future.
In the black market, good and product trading happen illegally. Items restricted or prohibited for selling in the open market find their way to the black market.
Grey economy comprises of goods or products that are not monitored or taxed by any government. It is an informal type of economy.
Grey market refers to a market where good and commodities trade through a distribution channel not approved by the issuer. The products in the grey market are legal, unlike that of the black market.
An IPO grey market is where company shares are traded unofficially by traders. It takes place before the official subscription begins. SEBI does not govern the grey market where trading happens over-the-counter. The grey market helps underwriters and issuer determine the interest of investors. It allows them to estimate how much the offer can fetch.
Grey market premium is simply the share price that the traders in the unofficial market are ready to pay. Let’s understand it with an example.
Suppose the shares of company ABC, priced Rs 200 is trading at Rs 300 in the grey market. So, the grey market premium for the share is Rs (200+300) or Rs 500. Grey market consists of enthusiastic buyers, who are ready to pay a premium price for the shares and sellers, who don’t want to take the risk and sell to book profit.
Indigo Paints IPO shares selling at 55 percent premium in the grey market
Currently, Indigo paints shares in the grey market are trading at Rs 2,340-2,330, as against Rs 1,490, or issue price of the shares, at a premium of around Rs 840-850 per share.
Indigo Paints IPO will issue in the price band of Rs 1,488-1,490 per share. The issue comprises fresh shares worth Rs 300 crores and 5.84 million offer for sale equities from investor Sequoia Capital India Investments (IV and V) and promoter Hemant Jalan.
The issuer has reserved 50 percent of the issue for qualified institutional buyers (QIB). Also, 70,000 shares are set aside for qualified employees. Rest 35 and 15 percent shares will allocate to retail investors and non-institutional investors, respectively.
Indigo Paints is the fifth largest producer of several types of decorative paints like cement paints, acrylic emulsion, exterior laminates, and more. The company has doubled its PAT between FY 2018 and FY 2020, from 3.2 to 7.7 percent, while its peers Asian Paints and Berger Paints clocked 2.5 and 3.4 percent rise, respectively in the same period.
The bidding for anchor investors begins on January 19, 2021, and the three-days subscription window for retail investors opens on January 20, 2021. To apply for Indigo Paints IPO, log in to Angel One client portal where you will find the list of all IPOs open for subscription. If you haven’t opened a Demat account yet, click here <account opening link> to open a Demat with Angel One.