Grey Market Premium (GMP)
Definition: Grey Market Premium (GMP) is the additional price that investors are willing to pay over the IPO price in the grey market before the stock is listed on the exchange.
Example: If the IPO issue price is ₹850 and an investor is willing to pay an additional ₹300 to get the IPO share, the GMP of the IPO is ₹300 per share.
Purpose: GMP helps predict the listing price of IPO shares and gives potential investors an idea of the share market sentiment and demand for the IPO.
| Ongoing IPO | Price Band | Bid Date | GMP | Gain | Type |
|---|---|---|---|---|---|
| One MobiKwik Systems Limited | ₹265-279 | 11 Dec ’24 13 Dec ’24 | ₹123 | 44% | Mainboard |
| Sai Life Sciences Limited | ₹522 – 549 | 11 Dec ’24 13 Dec ’24 | ₹45 | 30% | Mainboard |
| Vishal Mega Mart Limited | ₹74 – 78 | 11 Dec ’24 13 Dec ’24 | ₹15 | 18% | Mainboard |
| Inventurus Knowledge Solutions | ₹1265-1329 | 12 Dec ’24 16 Dec ’24 | Mainboard | ||
| International Gemological Institute | ₹397-417 | 13 Dec ’24 17 Dec ’24 |
Understanding the Grey Market and Grey Market Premium (GMP)
The grey market is an informal trading venue where shares can be bought and sold before they are officially listed on the stock exchange. The Grey Market Premium (GMP) is utilized to gauge investor sentiment toward an upcoming IPO.
High GMP: A high GMP suggests that investors are optimistic about the company and anticipate a rise in its share price once it is listed on the stock exchange.
Low GMP: Conversely, a low GMP implies that investors have a negative outlook on the company, expecting the share price to decrease upon listing.
Cautionary Note: It is crucial to understand that GMP is not always a reliable predictor of how the share price will perform post-listing. Several factors can impact the share price at the time of listing, including the level of demand from institutional investors and the overall market conditions.
Investor Sentiment: GMP primarily reflects investor sentiment at a particular moment in time. The actual share performance will depend on multiple factors, such as the company’s operational performance, broader market trends, and other relevant conditions.
The IPO Grey Market Premium (GMP) is a significant aspect that attracts potential investors. This article aims to provide an in-depth understanding of GMP, IPOs, and their relevance in the grey market.
Unofficial Market: The grey market operates outside the official stock exchanges. It’s an informal market where IPO shares are bought and sold before they become officially available on the public exchange.
- Nature of Transactions:
- Pre-Listing Trading: Shares of a company that is about to go public (IPO) are traded before their official listing date.
- Not Regulated: Since it’s not regulated by official financial authorities like SEBI (Securities and Exchange Board of India), transactions in the grey market are based on mutual trust between the parties involved.
- Purpose and Function:
- Price Discovery: The grey market helps investors gauge the demand for an IPO. If the shares are trading at a high premium, it indicates strong demand and vice versa.
- Liquidity Provider: It provides liquidity for those investors who wish to buy or sell IPO shares before they are officially traded.
- Risks Involved:
- Uncertainty: Since the grey market is unregulated, there is no guarantee of transaction completion.
- Price Volatility: Prices can be highly volatile, influenced by market sentiment and speculation.
- Lack of Transparency: The absence of regulatory oversight means there is less transparency and higher risk compared to official market transactions.
IPO GMP and Grey Market Premium FAQs
What is IPO GMP or Grey Market Premium?
The IPO Grey Market Premium (GMP) is the additional price at which IPO shares are informally traded prior to their official listing on the stock exchange. It represents the market’s evaluation of the potential value and demand for the shares.
What is Kostak Rate?
Kostak rates refer to the agreed price regardless of whether the investor secures the IPO allotment. The buyer is obligated to pay the Kostak rates for the IPO.
What is Subject to Sauda?
Subject to Sauda denotes agreements contingent on the IPO allotment. If the investor is allotted shares, the buyer is required to pay the predetermined rates for the IPO deal.
