Grey Market Premium of Sapphire Foods Ltd IPO

The Rs.2,073.25 crore IPO of Sapphire Foods Ltd consisted entirely of an offer for sale of Rs.2,073.25 crore. The issue had been priced in the band of Rs.1,120 to Rs.1,180 per share and the price has been discovered at Rs.1,180. The issue opened for subscription on 09-Nov and closed for subscription on 11-Nov.

The issue was subscribed 6.6 times overall. The stock is scheduled to list on Monday, 22nd November. Most of the shares start trading in the grey market well ahead of the IPO opening, which offers important indicators.

Ahead of the issue and ahead of listing, one of the key parameters for evaluating the potential IPO is the GMP or the grey market price.

A word of caution here. The GMP is not an official price point, just a popular informal price point. However, in most cases, it has proved to be a good informal gauge of demand and supply for the IPO. Hence it does give a broad idea of how the listing is likely to be and how the post-listing performance would be.

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While the GMP is just an informal approximation, it has been generally seen to be a good mirror of the real story. More than the actual price, it is the GMP trend over time that really gives the insights about the stock being upgraded or downgraded over a period of time and which direction the wind is blowing.

One of the key factors that impacts the GMP in most cases, is the extent of oversubscription. The GMP premiums will largely predicate on the extent of oversubscription in each of the categories. That would make the GMP premiums robust in the informal trading market.

As per updates coming in on Wednesday, 17-Nov, the Sapphire Foods Ltd IPO is commanding a premium of Rs.85 over the issue price in the grey market.

The GMP has fallen in the last ten days from Rs.125 levels to Rs.85 levels, where it has stabilized. Of course, this GMP will keep changing on a regular basis till the actual listing happens.

The current GMP of Rs.85 for Sapphire Foods Ltd IPO translates into a 7.20% premium over the upper price band of Rs.1,180, which is also the discovered price. It also hints at a listing price of approximately Rs.1,265 when the stock lists but this would be subject to constant change. GMP is an important informal indicator of likely listing price.

However, investors must keep in mind that this is just an informal indication and has no official sanction.

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