Key Points To Understand The Gray Market:

• Gray market is an unofficial market.
• GMP is premium per share.
• Kostak is premium per application.
• There are no rules or regulations in this market.
• SEBI or stock exchange has nothing to do with this market.
• All transactions in this market are done in cash.
• This market runs on full trust and promise.
• There is no official dealer in this market, sometimes there are plain paper deals.
• Mostly this market is run by a single person or a community.
• The higher GMP means a higher possibility of IPO getting listed at a bumper price.
• GMP activity can start before the price band announcement.

IPO Grey Market FAQs:

What is Grey Market Premium?

The grey market determines the share price of an IPO-bound company depending on the subscription data and investor sentiment. If the demand for shares is too high and the supply limited, the share quotes a premium over the allotment price. Buyers offer an additional amount over the IPO price to get the shares before listing. In the previous example, the additional Rs 100 per share offered to Mrs XYZ over the IPO price is the GMP. Shares of every company don’t command a premium in the grey market. If the response to the IPO is tepid, the shares may change hands at a discount in the grey market. Investors take cues from the GMP for the listing price and to gauge the overall response to an IPO. However, GMPs may not always be an accurate indicator as the grey market is susceptible to manipulation.

What is Kostak Rate?

The Kostak rate is the amount that one investor pays to the seller of an IPO application before the IPO listing. As the grey market reacts the Kostak rates also react that way. One can buy and sell their full IPO application on Kostak rates outside the market and fix their profit. The Kostak rates apply the investor gets the IPO allotment or not, the buyer should pay the Kostak rates for the IPO. If one did 4 applications for one IPO and sold the same at ₹500 per application it means he or she secured the IPO profit at ₹2000 rupees. If he gets the allotment in 2 applications still his profit will be ₹2000. Now if he sells the stock and gets a profit of around ₹8000 then he or she needs to give the remaining profit of ₹6000 to the investor who bought the application. This is the secure way to sell your application in the IPO grey market.

What is Subject to Sauda?

As per the Kostak rate, the Subject to Sauda on the application is the amount decided when the investors get the firm allotment on their IPO Application. If one buys or sells the IPO application on the subject to sauda it means one can get the said amount if one will get the allotment otherwise sauda will be cancelled. In this one can not fix their profit as it depends on the allotment. Again if one gets an allotment and he or she sold the application for around ₹15000 and the profit goes high on listing day around ₹21000 then one should pay ₹6000 to the guy who bought the application.

How to Calculate Grey Market Premium?

The IPO GMP aka grey market premium is a price that is traded in the grey market before the IPO listing process. The calculation is done based on the company’s performance, its demand in the grey market, and the probability of the subscription.

For Example; Let’s assume the issue price for share XYZ is Rs 100.

If the grey market premium is Rs 50, it means that people are ready to buy the shares of company XYZ for Rs 150; (i.e. 100 + 50).

Still, this is an assumption but the actual listing might vary from the grey market price.

What is Limit of IPO Grey Market Premium?

There is no limit of IPO Grey market premium, It is based on the demand of the shares. if the stocks have good demand before listing then they might open on higher profit. The IPO stocks have weak demand on the market then they might open at a negative price.

Is Grey Market Premium Changed Every Day?

Yes, the Grey market premium is changed every day based on the demand of the shares in the stock market.

Are Grey Market Stocks Safe?

It depends on the broker or the trading person and We suggest it is not safe. If you are trading in the grey market it will be at your own risk. There might be fluctuations on a higher side so one needs to do it with precautions. As we suggest just refer to the IPO GMP for the listing gain purpose. Be wise and trade in the primary market after listing only.

You can see how the initial public offering is applied from the demat account of different brokers by clicking on the name of the broker.

Upstox, Zerodha, AngelOne

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