What is IPO GMP?Ā
GMP, otherwise known as Grey Market Premium, is the premium price paid by the investors for the IPO shares before they get listed on the stock market.Ā
GMP is the difference between the price at which the IPO shares are trading in the Grey market, compared to their actual issue price.
For example, if an IPO issue price is ā¹100 and the GMP is ā¹20, it means investors are paying ā¹20 extra for the IPO. This indicates that the IPO might list at a price of ā¹120 per share.Ā
IPO GMP is just a speculation and fluctuates as per market demand and sentiment. One must not completely rely on it for IPO investment decisions, but can estimate the possible listing gains.
What is Grey Market in an IPO
Grey Market is an unregulated and unofficial market where shares are traded (Buy/Sell) before they are listed on the stock exchanges. Grey Market is entirely driven by the market sentiment and the trust between buyers and sellers. It is not regulated by SEBI or stock exchanges, meaning any transactions happening in the grey market are unofficial and done at the investorās own risk.Ā
If a share of an IPO is trading high in the Grey market, it indicates bullish sentiment and high investor demand. However, if the shares are trading at a discount, it indicates weak investor sentiment. But again, IPO GMP is just a speculation and does not guarantee profits.Ā
How IPO GMP is CalculatedĀ
IPO GMP is calculated based on the extra premium paid by the investors over the issue price of the IPO. GMP indicates the demand and supply of shares in the market.
For example, the issue price of an IPO is ā¹140, and the GMP of the IPO is ā¹35.
ā¹140+ā¹35 = ā¹175.
Meaning in the grey market, investors are willing to pay ā¹35 more, why? Due to bullish market sentiment, the companyās strong fundamentals, and a higher chance of expected listing gains. We can expect the IPO to be open at ā¹175 of the listing gains.
Why IPO GMP is important for an Investor
IPO GMP plays a crucial role in estimating the listing gains of the upcoming IPO. The grey market premium offers investors a sense of market sentiment and investor interest in the IPOs.
Key Reasons Investors Should Track IPO GMPĀ
- Indicates Market Sentiment
A positive IPO GMP indicates high listing gains and a positive investor sentiment. Whereas, low GMP suggests the negative market sentiment and a discounted listing.
- Suggest a possible listing gain
A high IPO GMP suggests that an IPO might list at a possible listing gain. A positive GMP indicates a bullish market sentiment, giving investors a sense of confidence.
- Support the investor’s decision
Investors always check IPO GMP status before making any investment decisions. While GMP does not guarantee profits, it does indicate a possibility of listing gains.
What is the Kostak Rate in an IPO?
Kostak Rate is the premium amount at which IPO applications are traded in the Grey Market. Simply, the Kostak rate is the rate at which the buyer agrees to buy the IPO application regardless of allotment in return for the fixed money.
For example, A buyer is ready to give ā¹500 to sell your IPO application regardless of whether you receive the allotment or not. In return for selling the IPO application, the seller will receive the amount of ā¹500, which is called the Kostak rate.
What is Subject to Sauda in an IPO?
When it comes to Subject to Sauda, the deal will be finalized only if the investors receive the IPO allotment.
If an investor receives the IPO allotment, then only the buyer has to pay the seller, and if they do not get the allotment, they will get nothing, and the deal will be cancelled.
Is IPO GMP Reliable?Ā
IPO GMP is an indicator that gives you insights into the market sentiment; however, it does not guarantee listing gains.
Since Grey Market Premium is an unofficial and unregulated market, you cannot complain about it to SEBI in case of not receive the expected listing gains.
The Grey Market runs on speculation, mostly based on a sense of demand and supply towards the IPO, so you cannot completely rely on it.
Along with GMP, investors must also evaluate the companyās fundamentals, its valuation, financials, and its market position, and should not invest in an IPO solely based on GMP.
Sometimes an IPO with high GMP may list at a flat or discounted listing price, while an IPO with low GMP can list at a premium listing price.
IPO GMP tends to fluctuate due to factors like subscription data, market volatility, and market sentiment.
Where to check IPO GMP today?Ā
Investors can check the IPO GMP of the upcoming IPO on various financial websites and IPO tracking platforms like IPOWatch.Ā
IPO Watch is one of the leading websites to track accurate and updated IPO GMP and other useful information on upcoming IPOs, IPO Allotment, and IPO News.
ConclusionĀ
IPO GMP or Grey Market Premium is a crucial step for investors to learn about the possible listing gains in the IPO before it gets listed on the stock exchanges. While the Grey market premium is a great way to evaluate the investor interest, it should not be the only factor to consider before investing in an IPO.
Along with GMP, investors should also analyse the companyās fundamentals, background, valuation, financial performance, and market position before making any decision. Track GMP to enhance your investment decision, but do not completely rely on it. For more such informed content, follow IPO Watch to receive the latest insights on IPO GMP and upcoming IPOs.
