Grey Market Premium of Go Fashion India Ltd IPO

The Rs.1,014 crore IPO of Go Fashion India Ltd consists of an offer for sale of Rs.889 crore and a fresh issue of Rs.125 crore. The issue had been priced in the band of Rs.655 to Rs.690 per share and the price discovery will depend on the IPO response. The issue opens for subscription on 17-Nov and closes for subscription on 22-Nov.

Most of the shares start trading in the grey market well ahead of the IPO opening, which offers important indicators. Ahead of the issue and ahead of listing, one of the key parameters for evaluating the potential IPO is the GMP or the grey market price.

A word of caution 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.

Check - Go Fashion (India) IPO - 7 Things to Know

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 the insights about the stock being upgraded or downgraded over a period of time and which direction the wind is blowing.

One of the key factors that impacts the GMP in most cases, is the extent of oversubscription. The GMP premiums will largely predicate on the extent of oversubscription in each of the categories. That would make the GMP premiums robust in the informal trading market.

As per updates coming in on Tuesday, 16-Nov, the Go Fashions India IPO is commanding a premium of Rs.350 over the issue price in the grey market. The GMP has spiked sharply in the last couple of days from Rs.300 levels to Rs.350 levels. Of course, this GMP will keep changing once the issue opens and the subscription updates keep coming in.

The current GMP of Rs.350 for Go Fashions India IPO translates into a 50.7% premium over the upper price band of Rs.690. It also hints at a listing price of approximately Rs.1,040 when the stock lists but this would be subject to real time change.

GMP is an important informal indicator of likely listing price. However, investors must keep in mind that this is just an informal indication and has no official sanction.

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