Grey market`s thumbs up for DLF IPO ???

Grey market`s thumbs up for DLF IPO
Rajesh Bhayani / Mumbai June 09, 2007
The DLF issue, which is the country's largest IPO, is setting new benchmarks — be it brokers' commissions or, what marketmen call koshtak prices, the rates offered by brokerages to investors just for filling up share application form. The issue opens on Monday.

Though the over 500-point correction in the Sensex has pushed down the koshtak prices for applications worth Rs 1 lakh from Rs 4,200 to Rs 3,100-3,200 levels in the Ahmedabad and Rajkot markets in the last couple of days, they are still way above the levels witnessed for other public offers.

Koshtak is the interest rate brokers pay to retail investors for the amount they pay to apply for shares in the retail category. The agreement is that the investor will transfer the shares he/she is allotted to the brokers.

Investors earn a decent interest for a period of two to three weeks while brokers bet on the appreciation of the stocks on listing.

Investment banks are also paying out record cash incentives. Brokers typically receive commissions of 0.2-0.4 per cent of the value of IPO shares allotted to their retail clients, but for the DLF issue, brokers are being paid commissions of Rs 200-500 per application form — whether or not clients get shares.

The grey market seems to have already declared the IPO a winner. DLF shares are trading in the grey market at around Rs 580, well above the IPO's Rs 500-550 indicated range.

Trading volumes have risen smartly in the key centres of Ahmedabad, Rajkot and Kolkata, indicating huge investor interest in the Rs 9,600 crore IPO.

Ahmedabad, Kolkata and Rajkot are the most active centres for the IPO grey market. The grey market is an unofficial market where trading of shares in forthcoming IPOs is conducted. A premium or discount indicates the level of retail interest in a public issue.

Going by the turnover in the grey market, the DLF IPO is likely to get subscribed one and a half to two times, said a Gujarat-based grey market dealer.

Meanwhile, another company which has elicited good grey market interest is Meghmani Chemicals. The price band for the issue is Rs 17-19 and the grey market premium is in the range of Rs 6-7 per share, down from Rs 9 a couple of days ago.