Premiums in the grey market—the unofficial market for trading in shares of soon-to-be-listed initial public offerings (IPOs)—have narrowed over the past week following the sell-off in mid and small-cap shares, as well as some tepid listings.

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Until the third day of bidding (August 6) in the public issue of Devyani International the grey market premium (GMP) of the stock surged to Rs 75. Since then, however, it has fallen to Rs 45 on August 11, the day of share allotment. The same trend has been observed in the IPOs that were launched last week and this week.

Windlas Biotech enjoyed a grey market premium of Rs 75-80 last week. But now, it has fallen by half to Rs 35-40. The GMP of Exxaro Tiles is in the range of Rs 8-9 this week, shrinking from its previous range of Rs 14-15.

Experts believe a weak stock market debut of some previous initial public offers (IPOs) like Glenmark Life Sciences and Rolex Rings have sent tremors across the IPO market.

Glenmark Life Sciences had a lacklustre debut in the context of its grey market premium. The shares listed at Rs 751, a premium of Rs 31 to the issue price, compared to the grey market premium of Rs 90.

Tepid listings despite high grey market premium are making investors cautious of new IPOs, Kunj Bansal of Karvy Capital told CNBC-TV18.

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Even as large caps are making new highs, the weakness in the second-line shares is making investors think twice before applying for IPOs, Bansal said.

Krsnaa Diagnostics saw its grey market premium falling from highs of Rs 435 to the lows of Rs 270 within a week. Similarly, the GMP of Cartrade Tech had risen to Rs 700 last week, and has now fallen to Rs 190.

Another reason is the recent issues are from non-fancy sectors, such as cement (Nuvoco Vistas) and home finance companies (Aptus Value), Bansal said. Investors already have a lot of existing investment opportunities in such stocks so buying new ones when the market is talking of inflated valuation does not make sense, he added.

Over the last six months or so, most of the IPOs have made good money for investors, at least at the listing, but we have also seen at various points of time in history, this does not sustain. That's when investors look at the fundamentals.

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In some cases, the issue sizes are too big and are aimed at existing investors an exit, or to repay debt. So, no money is going into the company.

“Saturation in the IPO market, aggressive pricing of issues, and increasing financing cost for HNIs is making investors cautious and the sentiment is reflecting in the grey market premium,” Sudip Bandyopadhyay of Inditrade Captial said.

HNIs or high net worth investors are losing money in the IPOs. In the case of Nuvoco Vistas, the portion reserved for HNI was unsubscribed even after three days. When Glenmark Life Sciences and Rolex Rings did not list at a premium big enough to cover the interest cost on borrowed funds, many HNIs lost money.

Rolex Rings shares jumped 30 percent after listing, which would have been good enough for retail investors who invest using their own funds. But for HNIs who borrow huge sums, the premium was not good enough.

Also, Rolex's listing premium was much lower compared to issues like GR Infraprojects and Tatva Chintan that doubled on listing, or Zomato and Clean Sciences that gained 75 and 65 percent on listing day.

The grey market premium of Nuvoco Vistas Corp has plummeted from the highs of Rs 55 last week to Rs 10 today. That of Aptus Value has stayed steady at Rs 25.

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(Edited by : Santosh Nair)