Should IPO investors trust GMP before subscribing? Nilesh Shah says no, because…

Grey market premium (GMP) is something that IPO investors in India are keeping an eye on. However, Kotak Mahindra Mutual Fund Managing Director Nilesh Shah said that choosing to believe in GMP IPOs is akin to forming a government right after seeing exit poll results. Nilesh Shah said, “The grey IPO market can be included as an issuance market on the stock exchange. Let the stock exchange floor guide the pricing of IPOs within the framework of regulation.”

He told Economic Times, “Often IPOs get subscribed because there is a grey market premium. So why should we allow this grey market premium to affect IPOs? If you really want grey market premium to affect investors, then why not create a ‘When-Issued’ market? Let the stock exchanges drive the grey IPO market, it will be within the scope of regulation. And then nothing will work on rumours. All the activities will take place within the framework of the market structure.”

When asked whether GMP can be manipulated or not, he said in an interview, “In the grey market, we don’t know the volumes and players. People can give any number in WhatsApp messages. They are so naive that they believe in these numbers. Now it’s like forming a government based on exit polls and not on actual results. You can’t make such a mistake.”

He explained, “For example, in the case of stocks, if Swiggy IPO is to come up, then trading will start on the exchanges before listing. Trading will take place using margins and settlement will be done accordingly. In the grey market, you can see the price but who will guarantee the settlement? Who knows how many settlements have been done? Instead of playing underground, let’s do it formally. Let’s turn this grey market into a white market. Many times, IPOs go through on the basis of grey market which is not fair.”