What Is GMP In IPO : How Is Grey Market Premium Calculated?

IPO gray market is an unofficial and informal market. Before any new IPO is listed on the stock exchange, its shares start trading in the gray market. Such buying and selling of shares is done based on the price at which a stock will be listed on the stock exchange. In simple terms, the gray market operates on the potential cost of a company’s shares. The IPO gray market is unregulated, but it is essential for every IPO because it gives potential investors an idea of ​​the stock market sentiment and demand for an IPO. This blog post will discuss What Is GMP In IPO, GMP Full Form, How Is GMP Calculated For IPO and Top Upcoming IPO In 2024.

The amount of money an investor will pay for a company’s shares in the gray market over its IPO issue price is called the gray market premium. Kostak Rate or Subject to Sauda is the price at which IPO applications/lots are sold in the gray market.

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What Is GMP In IPO

The full form of GMP is Gray Market Premium. GMP is the difference between the trading price of IPO shares in the gray market and the IPO issue price. Example – Suppose the issue price of an IPO is Rs 850, and an investor is willing to pay an additional Rs 300 to get a share in the IPO. This means that the GMP of the IPO is Rs 300 per share.

IPO GMP helps predict the price at which a share can be listed on the stock exchange. In the above example, investors expect a listing price of Rs 1,150 (IPO issue price + GMP, i.e., 850 + 300). However, there is no guarantee that the listing price of the IPO will be precisely equal to the GMP. GMP is just one indicator that helps investors predict the Gray Market Premium price and make their investment decisions accordingly.

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GMP Full Form

Gray market premium or GMP is paid for initial public offering (IPO) shares before they are listed on stock exchanges. For example – if LIC fixes its IPO price at Rs 90 per share, and its IPO GMP is 50, its shares can be listed at Rs 140.90. However, GMP is just an indicator.

Simply put, companies launching IPOs estimate their prices in the gray market before listing. GMP is a crucial indicator that shows how the IPO might perform on the day of listing. Let us tell you here that the price of GMP keeps changing depending on the demand for shares in the stock markets. Suppose the demand for the company’s shares is very high before the stock is listed. In that case, the GMP will be high, and if the demand for the shares is not high in the market, then the GMP of the share can be low.

The ‘grey’ market is an informal market where investors buy and sell shares before their official listing on exchanges. In the gray market, shares are traded for cash and in person. However, this does not happen in the IPO market. However, the gray market is not officially authorized or regulated. Stock exchanges, SEBIs, and brokers have no involvement or support in any transaction in the gray market. If the shares fall, no legal help can be given to the parties concerned.

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How Is GMP Calculated For IPO

Now you understand what is GMP in IPO. So, now we will understand how to calculate GMP. GMP is calculated by comparing the current price of the IPO in the primary market with the trading price of the share in the gray market.

Therefore, the GMP of an IPO can be calculated using the formula below.

GMPR = Gray Market Premium x Number of Shares

A Step-By-Step Guide to Calculate GMP of IPOs

To calculate the GMP of an IPO, follow these steps:

Step 1: Before calculating the gray market premium, collect the latest value of the gray market premium of the IPO and share price information.

Step 1: To determine What Is GMP In IPO, subtract the issue price from the IPO gray market price. For example, if the issue price is ₹100 per share and the gray market price of the IPO is ₹102 per share, then the GMP IPO will be ₹2 per share.

Step 3: Divide GMP by the issue price and then multiply by 100 to calculate GMP percentage. As per the above example, the GMP IPO percentage is (2/10) x 100 = 20%.

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What Is The Kostak Rate?

Simply put, if the number of applications received for shares through an IPO exceeds the number available for allotment, investors allotted shares can sell their applications to other interested investors at a premium. This premium is known as the Kostak Rate.

Kostak Rate is also generally called fixed amount. Therefore, the Kostak Rate varies depending on factors such as demand for GMP of the IPO, the reputation of the company, and overall market conditions. This is generally determined by agreement between the buyer and seller of the IPO application.

Top Upcoming IPO In 2024

1. Akiko Global Services Limited IPO
2. Divine Power Energy Limited IPO
3. Shivalic Power Control Limited IPO
4. Sylvan Plyboard (India) Ltd IPO
5. Stanley Lifestyles Limited IPO
6. Medicamen Organics Limited IPO
7. Dindigul Farm Product Limited IPO
8. Winny Immigration and Education Services Ltd IPO
9. GEM Enviro Management Limited IPO
10. DEE Development Engineers Limited IPO
11. Durlax Top Surface Limited IPO Jun 19, 2024
12. Falcon Technoprojects India Limited IPO
13. Akme Fintrade India Ltd IPO
14. GP Eco Solutions India Limited IPO
15. United Cotfab Limited IPO
16. Le Travenues Technology Ltd IPO
17. Sattrix Information Security Limited IPO
18. Magenta Lifecare Limited IPO
19. 3C IT Solutions & Telecoms (India) Limited IPO
20. Kronox Lab Sciences Limited IPO

Note : This list will be updated as and when the IPO dates are announced.