What is IPO GMP? The Complete Investor's Guide to Grey Market Premium
Last Updated: December 2025
If you have been following the Indian primary market, you have undoubtedly seen the term "GMP" flashing across financial news sites and trading apps. Whether it is a massive Mainboard launch like ICICI Prudential AMC or a high-risk SME issue like Neptune Logitek, the "Grey Market Premium" is often the first indicator investors check.
But what exactly is GMP? Is it legal? And most importantly, can you rely on it to make investment decisions? In this comprehensive guide, we will break down everything you need to know about the Grey Market, Kostak Rates, and how to calculate your potential listing gains.
1. What is Grey Market Premium (GMP)?
The Grey Market Premium (GMP) is the extra amount that investors are willing to pay for an IPO share in the unofficial market before it is listed on the official stock exchanges (NSE or BSE).
Think of the Grey Market as a "shadow market." It operates on trust and is not regulated by SEBI. Transactions here happen in cash or personal settlements, typically among a closed network of brokers and investors.
The "Confidence Score"
GMP acts as an early indicator of market sentiment.
- Positive GMP: Investors are bullish; demand exceeds supply.
- Negative GMP: Investors are bearish; the stock might list at a discount.
2. How to Calculate Listing Price Using GMP
Calculating the estimated listing price is simple arithmetic. The formula is:
Listing Price = Issue Price + Current GMP
Real-World Example (Dec 2025): Corona Remedies
Let’s take the recent Corona Remedies IPO to illustrate this:
- IPO Issue Price: ₹1,062 per share
- Current GMP: ₹325 per share
Calculation:
$$1062 + 325 = \text{₹1,387}$$
In this scenario, the grey market is predicting a listing price of ₹1,387, which represents a listing gain of approximately 30.6%.
3. Advanced Terms: Kostak and Subject to Sauda
GMP isn't the only term you need to know. Experienced investors also look at "Kostak" and "Subject to Sauda."
What is Kostak Rate?
The Kostak Rate is the price paid for an IPO application before the allotment status is known.
How it works: You sell your application to a buyer in the grey market for a fixed price (e.g., ₹500).
- If you get the allotment, the buyer keeps the profit.
- If you don't get the allotment, you still keep the ₹500 Kostak money.
What is "Subject to Sauda"?
Unlike Kostak, Subject to Sauda (SS) is a deal that is valid only if you get the allotment. If you do not receive shares in the lottery, the deal is void, and no money changes hands. The rates for SS are usually higher than Kostak because the risk is lower for the buyer.
4. Factors That Influence GMP
Why does GMP fluctuate wildly from day to day? Several factors play a role:
- Subscription Figures (QIB Portion): The Qualified Institutional Buyer (QIB) portion is the "smart money." If QIBs oversubscribe to an IPO by 50x or 100x, the GMP usually spikes.
- Market Sentiment (NIFTY/SENSEX): If the broader market is crashing, even a good company will see its GMP erode.
- Peer Valuation: If a competitor in the same industry posts weak quarterly results, it can drag down the GMP of the IPO.
5. Is the Grey Market Reliable? (The Risks)
Warning: The Grey Market is unregulated. Here are the risks you must know:
- Manipulation: "Operators" with deep pockets can buy shares in the grey market to artificially inflate the GMP, luring retail investors into a trap.
- No Legal Recourse: Since these trades are unofficial, you cannot complain to SEBI or the exchanges if a deal goes wrong.
- Listing Day Surprises: A high GMP does not guarantee a high listing. Market conditions on the morning of the listing can change everything.
Conclusion: The Smart Strategy
Should you look at GMP? Yes. Should you invest solely based on it? No.
Use GMP as a temperature check, but always combine it with fundamental analysis—check the company's P/E ratio, debt levels, and the "Anchor Investor" list before hitting the subscribe button.
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