India’s IPO grey market is legal, but SEBI does not control or oversee it. This particular aspect highlights that your investment’s security cannot be guaranteed, making you vulnerable to fraud.
On the grey market, shares of a company that hasn’t yet gone public are traded in an unregulated environment. Since supply and demand dynamics heavily influence these shares’ prices, they can differ significantly from those on the official stock exchange.
Trading on the Indian IPO grey market carries inherent dangers.
Firstly, there is no assurance that the shares will actually be allocated to you, despite your participation in the market.
Secondly, the price of shares on the black market might deviate substantially from the stock exchange price. This volatility can expose you to significant gains or losses.
Thirdly, given the lack of regulatory oversight, there is a possibility of encountering deceptive practices on the grey market.
Due to these compelling reasons, participating in the Indian IPO grey market is generally not advised. If you are considering doing so, you should carefully weigh the risks and potential rewards.
Here are some of the risks to consider when trading on the Indian IPO grey market:
1. Fraud: There is an increased risk of falling prey to dishonest sellers dealing in counterfeit shares.
2. Lack of Regulatory Protection: SEBI does not regulate the grey market, you have no recourse if you are scammed or if the price of the shares falls.
3. Financial Loss: The price of shares on the grey market can experience considerable fluctuations, and if the value drops, your investment could be at risk.
Reliance Retail’s painful grey market story: Twitter users thrilled buying Reliance Retail shares at Rs 3,400 per share in the grey market, only to face the disheartening reality of a payout of just Rs 1,362 per share. In this story, we learn about the dangers and regrets that come along with speculative endeavours. It reminds us of the possible financial losses and the importance of being extremely careful before getting involved in the uncertain grey market.
Here are some additional points to consider while trading in the IPO grey market safely:
- Do thorough research and evaluate the essential risks:Before you buy any shares in the grey market, it is important to do your research and understand the company. You should also look at the demand for the shares and the price history.
- Only trade with reputable dealers: When entering into such transactions, only deal with reputable and trustworthy dealers.
- Be prepared to lose money: The grey market is a risky proposition, and you should be prepared to lose money.
If you follow these tips, you can help to reduce the risks of trading in the IPO grey market. However, it is important to remember that there is no guarantee of safety, even if you follow these tips.