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In an exclusive chat with ETMarkets, the star money manager recommends that the regulator should let stock exchanges drive the IPO grey market instead of letting a few market participants run an underground den.
“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,” says Shah.
Relatively less known to equity traders on Dalal Street but common in bonds, “when-issued” refers to a security that has been authorised for issuance but not yet actually issued. It works very similar to how the grey market works but is transparent and regulated. Edited excerpts from a chat with Nilesh Shah:
The grey market premium has become the single biggest metric for IPO investors. Is GMP fair enough? Ola Electric GMP indicated a flat listing but the stock went through the roof after a flat debut.
Nilesh Shah: 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.
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Right now, the GMPs can be manipulated?
Nilesh Shah: 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.
So we need to bring our informal market into the formal market. Why not bring them on our exchange so that people can then have information from a regulated channel. No one can take them for a ride. Let the market take a collective call.What is happening today is that institutional investors, by and large, are taking a research call, but some non-institutional investors are getting influenced by the grey market premium for IPO.
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So how will the new mechanism of the when-issued market that you are proposing work out?
Nilesh Shah: We already have a when-issued market in government securities. 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.
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https://economictimes.indiatimes.com/markets/expert-view/ipo-investing-using-grey-market-numbers-is-like-forming-government-after-exit-poll-nilesh-shah/articleshow/113616563.cms
