Harsha Engineers International Ltd.'s IPO: Grey Market Premium

The Rs.755 crore IPO of Harsha Engineers International Ltd comprises of a fresh issue of shares worth Rs455 core and an offer for sale (OFS) by the promoters and early shareholders of the company of Rs300 crore. The issue has been priced in the band of Rs.314 to Rs.330 per share and the IPO allotment price will be discovered post the book building of shares is completed during the IPO process. 

The issue opens for subscription on 14th September 2022 and closes for subscription on 16th September 2022 (both days inclusive). The basis of allotment will be finalized on 21st September 2022 and the refunds will be initiated on 22nd September 2022. In addition, the demat credits are expected to happen on 23rd September 2022 and the stock is scheduled to list on 26th September 2022. The grey market price (GMP) trading normally starts about 4-5 days prior to IPO opening and continues till the listing date. In the case of Harsha Engineers International Ltd, we already have GMP data for the last 5 days, which should give a reasonable picture of the likely listing performance.

There are 2 factors that impact the GMP. Firstly, the market conditions have a deep impact on the GMP, which includes the levels of the Nifty and Sensex as well as the general IPO market and macro conditions. Secondly, the extent of subscription for the IPO across the retail and the QIB segments also has a deep impact on the GMP as it is indicative of investor interest in the stock. Generally, strong QIB subscription is a trigger for a spike in GMP.

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 been observed 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 of the stock would be. 

GMP tends to be a good mirror of the real stock story. More than the actual price, it is the GMP trend over time that gives insights about which direction the wind is blowing. Here is a quick GMP summary for Harsha Engineers International Ltd for the days, data is available.

In the above case, the GMP trend shows that the grey market premium has opened on 08th September at around Rs120 and has since surged above the Rs200 mark. Of course, we have to await for the actual subscription numbers to flow in as that would have a very significant impact on the GMP. Here is an example. In the case of the IPO of Syrma SGS Technology in August 2022, the GMP improved significantly after the issue was subscribed more than 87 times by the QIBs. For a start, Harsha Engineers International Ltd has shown good traction in the grey market.

If you consider the upper end of the price band of Rs.330 as the indicative price, then the likely listing price is being signalled at around Rs.540 per share. One data point to track will be the subscription update on the stock as that would chart the GMP course from here. As mentioned, the QIB subscription is a key trigger for the GMP pricing.

The GMP of Rs.210 on a likely upper band pricing of Rs.330 indicates a listing premium of a healthy 63.6% over the listing price. That pre-supposes a listing price of approximately Rs.540 per share, when Harsha Engineers International Ltd lists on 26th September 2022. However, that would depend on the GMP sustaining over the next couple of days.

GMP (grey market price) is an important indicator, albeit informal, of likely listing price. One cannot take this price at face value However, the GMP tends to be quite dynamic and changes direction with the flow of news and events. Investors must note here that this is just an informal indication and has no official acceptance. The best thing one can do with the GMP is to observe the trend closely as that gives the best hints on listing status.