What Is IPO Grey Market Premium? Meaning, GMP & Examples

What is IPO Grey Market Premium? A Complete Beginner’s Guide

You might have heard the term Gray Market Premium, or GMP, being discussed by people, should you have ever been following an IPO. The investors start negotiating the amount over which the shares are selling in the grey market even before the company is officially listed in the stock exchange. This may be confusing to the novice. Since the stock is not yet traded, how is it possible to have a price? In this blog, we shall discuss the IPO grey market premium and its working.

Knowledge about IPO and the Grey Market

Initial public offering (IPO) is when the shares of a private company are being sold to the general public for the first time. Once the IPO is carried out, the shares are floated in the stock exchanges in the open markets such as the NSE and the BSE. As a matter of fact, there were 373 IPOs in the calendar year 2025. As a beginner, you must complete your demat account opening first.

The interesting part is now played: the grey market.

It is a grey market through which the shares of IPO are bought and sold before they become publicly listed in the market. The grey market is based on informal networks and local dealers. It is simple and straightforward, individuals are selling and buying IPO shares before listing day, simply because of hope.

Nevertheless, the grey market is not placed under:

• Securities and Exchange Board of India (SEBI)
• National Stock Exchange (NSE)
• Bombay Stock Exchange (BSE)

What is IPO Grey Market Premium?

The IPO grey market premium is the premium amount that investors will be willing to pay to the unofficial IPO issue price before the listing.

Suppose a company issues an IPO with a price of INR 200 a share. At the grey market, the buyers will insist on paying INR 260 per share of the same. The GMP in this case would be INR 260-INR 200=INR 60. So, the GMP would be INR 60. This implies that the investors will list the stock at a higher price compared to the issue price.

How is GMP Calculated?

GMP does not have an official formula. Rather it is determined by the following factors:

• Demand for the IPO
• Company fundamentals
• Overall market sentiment
• Subscription levels
• News or industry outlook

In essence, a GMF is an informal market demand and premium.

Categories of the transactions of the grey market

Other popular terms that you will hear in the IPO grey market are in addition to the GMO, Kostak Rate and Subject to Sauda. Both are methods of selling IPO applications in pre-listing deals unofficially.

What is the Kostak Rate?

Kostak rate is a fixed rate paid to an IPO application, prior to the announcement of the allotment results. The IPO application that you are selling is not the shares, but at a pre-determined price.

As an example, you have applied for an IPO of INR 15,000, and the rate of Kostak is INR 1,200. One of the buyers has accepted to pay you INR 1,200 to acquire your application. Here, regardless of whether you get the allotment or not, you get INR 1,200.

In case of shares allotment, the full responsibility of any gain or loss becomes the responsibility of the buyer once listed on stock exchange. In case of no shares allotted the deal is still on as you retain the fixed Kostak amount. In this form of deal, the seller is not subjected to uncertainty but most definitely the buyer is subject to risk.

What Is Subject to Sauda?

Subject to Sauda (which is sometimes spelled as STS) is a little different. In this instance, the deal can only be valid in case you get the IPO allotment.

As an example, when the STS is INR 8000 per lot, then the buyer will only pay INR 8000 provided that you are assigned shares. In any case you fail to receive the allotment, the deal is called off, and no money is changed.

The advantages of GMP in IPO Investments

Although GMP is not regulated, it is still followed by a high number of investors due to the following reasons:

Indicates Market Sentiment

GMP shows the perception of the market to an IPO. When the GMP is increasing, then there would be a good IPO demand and investor expectation. When the GMP is declining then this will indicate that there is poor interest in the IPO.

Assist in Estimating Potential Listing Price

GMP can provide you with a ball-park estimate of the probable listing price.

To illustrate, when an IPO is priced at INR 300 and then the GMP is INR 120, investors will have an idea that the stock will list at up to INR 420. This too is but an estimate but it gives you an idea of the likely gains on the listings prior to the commencement of the trading of the stock.

Reflects Demand More than Subscription Numbers

Whereas the subscription numbers indicate the number of times an IPO has been oversubscribed, GMP indicates willingness to pay a premium over the issue price. Even before final subscription data is available, GMP trends occasionally can give indication of demand accretion or deceleration.

Is GMO a Reliable Starting Place?

As a novice, you should not rely totally on GMP. Although it will give the investors a reference, it does not guarantee listing increases. GMP too is flexible and is capable of altering with market dynamics. That is the reason why you need to do good research prior to making any investment in the IPO.