Shares of Star Health and Allied Insurance Company, backed by investor Rakesh Jhunjhunwala, fell in the grey market as its initial public offering drew closer.
The Rs 7,249 crore issue– the third-largest in India’s best year for IPOs in a decade–opens for subscription on November 30 and closes on December 2.
Star Health shares were available at Rs 940-950 in the grey market on November 26, falling from Rs 1,050 on November 24, a day after the price band for the IPO was announced, according to IPO Watch and IPO Central. The grey market premium of 4.4-5.6 percent over the issue price of Rs 900 (upper price band) has narrowed from 16.7 percent earlier.
Experts said the huge IPO size, the disappointing listing of Paytm (the largest IPO), consistent selling by foreign institutional investors in the equity market, and the ongoing decline in the broader markets could be pulling down the grey market premium of Star Health shares.
Star Health claims to be the largest private health insurer in India, with a market share of 15.8 percent and star investor Jhunjhunwala as a backer, which should make the stock extremely attractive, said Sonam Srivastava, founder of Wright Research. But the grey market premium for this issue has drastically decreased over the past few days and there could be many reasons for that, Srivastava said.
“First, this is a huge issue and we have seen smaller issues get better listing gains in the previous IPOs. Second, the last IPO, Paytm, got hammered and created a nasty narrative around IPOs, which might be decreasing the attractiveness of this one. Third, the broader markets are in correction with FIIs pulling money out of India, and listing gains are directly linked to market performance, which could be another reason causing this,” Srivastava said.
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Shares of Paytm operator One 97 Communications, which came out with a Rs 18,300 crore IPO, fell more than 40 percent from the issue price, although they have recovered some ground from a record low.
The mood of the markets has also changed over the past one month as bears gripped Dalal Street, though intermittently showing recovery. The benchmark indices have declined about 8 percent from a record high on October 19, eroding Rs 14 lakh crore of wealth in this period.
FIIs have net sold more than Rs 50,000 crore worth of shares so far in October and November as central banks prepare to withdraw their stimulus packages and increase interest rates.
Star Health’s IPO comprises a fresh issue of shares for Rs 2,000 crore and an offer for sale of shares worth Rs 5,249 crore by promoters and existing investors. The price band for the offer has been fixed at Rs 870-900.
The company will use the proceeds of the IPO to augment its capital base and insolvency level.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before making any investment decisions.