(Bloomberg) -- India’s unregulated gray market is indicating that the excitement around Hyundai Motor India Ltd.’s $3.3 billion initial public offering — poised to be the country’s biggest ever — is cooling.

Shares of Hyundai Motor Co.’s unit traded Monday at a premium of just 60 rupees over 1,960 rupees ($23.30) apiece — the high end of its IPO price range — in India’s gray market, according to investors who participate in the market. That’s versus a premium of as high as 1,000 rupees about two weeks ago, the traders said. 

The carmaker’s share sale bolsters the country’s reputation as one of the busiest markets for equity capital-raising this year. But fickle demand from individual investors for its shares also reflects challenges the firm will face in a competitive market rife with incentives and price cuts as the pandemic-driven demand surge cools.

“The initial euphoria is over,” said Gaurav Thakker, a Mumbai-based trader who trades in IPO shares. “Just ahead of the launch of the IPO, we had a war-like situation in the Middle East. Same time, automobile sales in India have been lackluster, which has impacted expectations for Hyundai’s listing gains.”

In unregulated gray market trading, investors enter into informal contracts to trade shares at a pre-determined price before their actual debut. The change in sentiment around Hyundai Motor India is reminiscent of the 2022 debut of Life Insurance Corp. of India, whose $2.7 billion IPO was the biggest in the country at the time. The state-run insurer’s shares had traded at discount in the gray market ahead of their debut and slumped on the first day of trading despite investors’ strong response. 

Hyundai Motor’s shares are scheduled to begin trading in Mumbai starting Oct. 22. The Indian unit is not issuing any new shares. But its Korean parent Hyundai Motor plans to sell as many as 142.2 million shares of the unit, or a 17.5% stake. At the top-end of the price band, the company, already the second-biggest carmaker by sales in India, would be valued at about $19 billion.

The entire IPO proceeds will go the parent, which has not clarified how they will be used. Earlier this year, Hyundai Motor announced plans to spend as much as $3 billion on buying back its Seoul-listed shares. 

Still, most brokerages have recommended Hyundai Motor India’s shares. The company would benefit from its parent’s support and commitment for expansion in India, Aditya Birla Money Ltd. analyst Mihir Manek wrote in a note.

But its “rich” valuation, at the upper price band, is at 26 times its fiscal 2024 earnings per share, Manek noted. That leaves “little on the table for investors,” he said.         

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