The strong listing of HDFC Life initial public offer (IPO) stumped many punters on Friday. Traders who invest in IPOs to make a quick buck on listing day, gave this issue a miss because of the grey market discount. Initially, there was a grey market premium of Rs 12 but just before the issue it was trading at a discount of Rs 5. Add to this, the tepid performance of insurance stocks did not enthuse many retail investors to this IPO as well. However, the stock rose 27 per cent on its debut and closed at Rs 344, up 19 per cent. Even the benchmark indices were in a buoyant mood after Moody's upgraded India's sovereign rating and the Sensex closed at 33,342 points, up 236 points.
5Paisa listing exposes price discovery flaw
The listing of 5Paisa Capital, the discount broking arm spun off from parent IIFL Holdings, exposed a flaw in the pre-open price discovery system used by stock exchanges. The so-called pre-open call auction is used by the National Stock Exchange (NSE) and the BSE to arrive at an equilibrium trading price. The system is used to iron out high volatility seen during new listings. However, price discovered for 5Paisa was about Rs 400 on the NSE and Rs 650 on the BSE, a difference of 40 per cent. To make matters worse, the stock has a five per cent trading limit. “Given the trading limit, it will take months for the stock to find a fair value given the huge differential in prices on both exchanges. In such cases, both exchanges will have to sit together and find a solution,” said a broker.