Vedant Fashions IPO - Grey Market Premium

The Rs.3,149.19 crore IPO of Vedant Fashions Ltd consists entirely of an offer for sale of Rs.3,149.19 crore. The issue had been priced in the band of Rs.824 to Rs.866 per share and the IPO allotment price has been discovered at the upper end of the price band at Rs.866 per share.

The issue opened for subscription on 04-Feb and closed for subscription on 08-Feb. The basis of allotment was finalized late on 11-Feb and the stock is scheduled to list on the bourses on Wednesday 16th February. 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. With the benefit of a fairly long time frame, we can look at how the GMP has panned out over time.

In the case of Vedant Fashions, the GMP trend shows that the grey market premium scaling as high as Rs.80 per share to Rs.90 per share by the end of January. However, in February, the GMP tapered lower to the range of Rs.40 to Rs.50 per share. However, after the close of the IPO, considering its tepid response of just about 2.57X subscription, the GMP fell sharply to Rs.10 per share, where it stabilized.

What is interesting is that while the GMP was fixated at Rs.10 per share till 11-February, there has been no trading in the grey market after that. Hence the last known price we have for the Vedant Fashions IPO is about 4 days old and that is a grey market premium of Rs.10 per share.

If you consider the upper end of the price band of Rs.866, where the IPO price has been eventually discovered for the purpose of allotment, then the likely listing price is being signalled at around Rs.876 per share even if you consider the last available data on GMP.

This broadly indicates at a flat to tepid listing on 16th February when Vedant Fashions lists. However, considering that the overall market sentiments are still fairly weak, you can expect pressure on the stock post listing.

The last available GMP of Rs.10 on the upper band pricing of Rs.866 indicates a listing premium of just about 1.15% over the listing price. That presupposes a listing price of approximately Rs.876 per share, when Vedanta Fashions lists on 16th February, but that is still hypothetical since there has bene no liquidity in GMP for the last 3 days.

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. However, investors must note that this is just an informal indication and has no official sanction. Also, when the markets are too volatile or uncertain, GMP tends to overstate the downsides.

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