Rainbow Children’s Medicare IPO - Grey Market Premium

5paisa Research Team 5paisa Research Team 13th December 2022 - 11:07 am

The Rainbow Children's Medicare IPO consists of Rs.1,581 crore out of which fresh issue is of Rs.280 crore and an offer for sale of Rs.1,301 crore by the promoters and PE investors. The issue has been priced in the band of Rs.516 to Rs.542 per share and the IPO allotment price will be discovered post the book building process completion.

The issue opens for subscription on 27th April and closes for subscription on 29th April. The stock is scheduled to list on 10th May. The GMP trading normally starts about 4-5 days prior to IPO opening and continues till the listing date.

There are 2 factors that impact the GMP. Firstly, the market conditions have a deep impact on the GMP. Secondly, the extent of subscription also has a deep impact on the GMP as it is indicative of investor interest in the stock.

There is one small point to remember 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.

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 insights about which direction the wind is blowing.

Here is a quick GMP summary for Rainbow Children's Medicare Ltd over the last 5 days for which GMP is available.

20-Apr	21-Apr	22-Apr	23-Apr	25-Apr
Rs.50	Rs.50	Rs.50	Rs.50	Rs.50

In the above case, the GMP trend shows that the grey market premium has remained steady at Rs.50 per share; over the last 5 days. Of course, we have to await for the actual subscription numbers to flow in. But, clearly this shows low to medium levels of interest in the grey market ahead of the IPO and that is broadly a positive signal.

If you consider the upper end of the price band of Rs.542 as the indicative price, then the likely listing price is being signalled at around Rs.592 per share (by adding the GMP premium to the upper end of the price band). One data point to track will be the subscription update on the stock as that would chart the GMP course from here.

The GMP of Rs.50 on a likely upper band pricing of Rs.542 indicates a listing premium of a very moderate 9.23% over the listing price. That presupposes a listing price of approximately Rs.592 per share, when Rainbow Children's Medicare Ltd actually lists on 10th May 2022.

GMP is an important informal indicator of likely listing price, although it tends to be quite dynamic and changes direction with the flow of news. Here, investors must note that this is just an informal indication and has no official sanction.

However, for traders who are in the stock for the short term, the GMP gives a reasonably good indication of the likely listing price and the likely listing returns on the IPO.

The catch is that this grey market price can still keep changing depending on how the subscription pans out once the actual issue opens. That is why the trend of the GMP is as critical as the quantum of GMP.

Also Read:-

List of Upcoming IPOs in April 2022

Upcoming IPOs in 2022