IPO Grey Market Premium, Latest IPO GMP & Kostak Rates – IPO Watch

IPO Grey Market FAQs:

What is Grey Market Premium?

The “grey market premium” aka “IPO GMP” is a term people use in the IPO market to check what is the estimated price the IPO might list. The grey market is unofficial but investors look at the grey market price of an IPO to get the fixed gain of the stock. The grey market works before the IPO listing and during the days from the IPO start date to the allotment date. The grey market premium indicates how the IPO might react on a listing day with an estimated price. Let’s see how the calculation goes on. If the company comes up with an IPO of ₹100 and the grey market premium is around ₹20 then we can assume that the IPO might list at around ₹120 on its listing day. But the fact is, there is no reliability. In most cases, IPO GMP works but in some cases, it’s not. We have observed that if the IPO is in demand and the estimated HNI and QIB subscription is on a higher side, the IPO list around the given price with estimated IPO GMP.

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 5 applications for one IPO and sold the same at ₹1000 per application it means he or she secured the IPO profit at ₹5000 rupees. If he gets the allotment in 2 applications still his profit will be ₹5000. Now if he sells the stock and gets a profit of around ₹10000 then he or she needs to give the remaining profit of ₹5000 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 ₹10000 and the profit goes high on listing day around ₹15000 then one should pay ₹5000 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. Let’s assume that if the X IPO price is fixed at ₹200 and the grey market is showing the rate of ₹100 it means the IPO might list at ₹300 (ie: ₹200+₹100). Still, this is an assumption but the actual listing might vary from the grey market price.

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.

How Do I Buy / Sell IPO Application in Grey Market?

There are no official people or businesses associated with the grey market. Some brokers buy and sell IPO applications on Kostak Rates or Subject to Sauda Rates based on the IPO GMP. One should find local brokers who stay between buyers and sellers and do the grey market trading of IPO applications. Be aware of the rates and then do the buying or selling.