What is GMP in IPO? Powerful 8 GMP Facts for Investors

What is GMP in IPO? Learn how Grey Market Premium works, types of trading (GMP & Kostak), and why investors use it before IPO listing. 2025 Guide!

1. Introduction

In this introductory part, we are going to talk about the correct information of What is GMP in IPO? Which will give you complete knowledge about GMP. In this entire article, we will explain to you in detail what this GMP is and its other 8 things which you should know.

What is GMP in IPO?

When a company offers its shares to the public for the first time, that process is called IPO (Initial Public Offering). An unofficial market becomes active before the release of IPO, which is called Grey Market. Here a term is used – GMP, i.e. Grey Market Premium.

GMP means how much premium is being received in the grey market over the issue price of the IPO share.

For example, if the issue price of an IPO is ₹100 and GMP is ₹50, then it means that people are expecting that the share listing may be around ₹150.

Retail investors consider GMP as an important signal, because it tells how much demand there is for that IPO in the market. But this is not official data, still many people consider GMP while taking investment decisions.

2. What is Grey Market?

In this section we are going to talk about A) What is Grey Market Stock? and B) Types of Trading in Grey Market. This section will give you complete knowledge about grey market stock. In this section we will also tell you what are the types of trading in grey market.

A) What is Grey Market Stock?

Grey Market Stock refers to those IPO shares which are traded in the unofficial market among investors even before the official listing. These stocks are not yet registered on the stock exchange, so they do not have any formal trading platform – but still deals are mostly done between buyers and sellers through brokers.

🔹 Key Points to Understand:

• Unlisted Shares: These shares are not yet traded on BSE or NSE.
• Pre-Listing Trading: They are exchanged in the grey market on the basis of demand-supply even before listing.
• Price Control: Their price is decided according to GMP (Grey Market Premium), which tells how much extra money people are ready to pay in the market.
• No Official Records: These transactions are not recorded in any stock exchange. Everything happens offline or through brokers.
• Risky but Insightful: Grey market stock is a risky concept, but it gives a strong signal of investor sentiment and popularity of the IPO.

🔹 Example:
Suppose the issue price of an IPO is ₹100. If the GMP of that IPO in the grey market is ₹30, then it means that investors are ready to pay up to ₹130 for that share – even before official allotment or listing.

This clearly shows that there is strong demand for IPO in the market. If you get allotment, then the possibility of getting profit on the day of listing increases.

B) Types of Trading in Grey Market

In the Grey Market, trading related to IPO shares does not officially take place on the stock exchange, but still trading is done in 2 ways – GMP-based trading and KOSTAK rate trading.

🔹 1. GMP-based Trading (Grey Market Premium)

This trading takes place when the IPO shares have not been allotted, but the deal is done at a premium price between investors and dealers.

How does it happen?

The investor says: “If I am allotted IPO shares, then I will sell them at ₹X premium per share.”

Deal Example:

IPO Issue Price = ₹100

GMP = ₹50

Investor agrees to sell shares (if allotted) at ₹150 total price

If allotment is received, shares are transferred to the dealer and investor gets ₹150.

Risk:

• If allotment is not done, deal is cancelled.
• If listing price is ₹130, dealer will incur loss (as he paid ₹150).
• This is a high-risk, high-reward model — but gives a clear idea of sentiment and expected listing price.

🔹 2. KOSTAK Rate Trading

This trading is for those investors who have high chances of allotment (e.g., large applications), but they do not want to take listing risk.

What is KOSTAK Rate?

KOSTAK is a fixed price in exchange for which you give your IPO application right to someone else, whether there is allotment or not.

Example:

Investor applied for IPO.

The other person says: “I will give you ₹ 800 for an application.”

This ₹ 800 is fixed — if allotment is received, then the other person will own the shares.

If not, investor still gets ₹800 – no risk.

Benefit:

• Fixed profit for investor, zero risk.
• Buyer gets chance to gain if allotment + listing price is high.

3. An Overview of GMP (Grey Market Premium)

Whenever a new IPO comes in the market, the most discussed topic among investors is GMP, i.e. Grey Market Premium. This is an unofficial indicator that tells how much demand there is for the shares of that IPO in the market before listing. GMP gives investors an idea of the price at which the shares can open on the day of listing and whether they will get short-term gain or not. In this section, we will understand what is GMP, how does it work, and why retail investors trust it so much.

A) Understanding Grey Market Premium (GMP) and Why Retail Investors Use It?

GMP (Grey Market Premium) means the premium that IPO shares get during trading in the unofficial market.

These shares trade before they are officially listed on the stock exchange – a kind of “grey” (unofficial) market.

👉 Example: If the issue price of an IPO is ₹100 and it is trading at ₹140 in the grey market, then GMP = ₹40.

🔍 Why do retail investors look at GMP?

• Estimate of Listing Gain: By looking at GMP, people estimate how much profit they can get on the day of listing.
• Decision to apply for IPO: People invest more confidently in IPO when GMP is high.
• Signal of Market Sentiment: GMP tells how much demand there is for that IPO in the market.

B) Why is GMP Important?

GMP is quite important because:

1. Investor Sentiment Indicator:
   If GMP is high then it means people have faith in the company and its IPO.
2. Idea of Short-Term Listing Gain:
   GMP is quite useful for estimating the profit to be received on the day of listing.
3. Signal of Oversubscription:
   High GMP means that the IPO is going to be oversubscribed – i.e. demand is high.
4. Risk Assessment:
   If GMP is changing frequently (is volatile), then the investor can understand that the risk is also high.

✅ Note: GMP is an unofficial source – does not come under SEBI. Therefore it should be seen only as a reference and the final decision should not be based on it.

4. Role of GMP in IPO Process

Whenever an IPO is launched in the market, an unofficial buzz starts even before its listing – which we call Grey Market Premium (GMP). GMP plays an important role during the IPO process as it tells investors at what premium the shares of a company can trade on the day of listing. GMP not only determines investor sentiment, but on its basis some people also apply in the IPO to get listed. In this section we will see how the Grey Market works and how IPO shares are traded there, even before the official listing.

A) How does IPO Grey Market Work?

IPO Grey Market is an unofficial and unregulated platform where IPO shares start trading even before they are listed on the stock exchange. This happens between market brokers and investors through personal connections or phone/informal channels – there is no SEBI regulation in this.

👉 How It Works:

Before Listing: When the IPO is in subscription phase, only then the demand-supply of shares is created in the grey market.

GMP is set: The premium settled between buyers and sellers (e.g. ₹30 above issue price) is called GMP.

Trading Without Ownership: Shares are not transferred physically or in demat in Grey Market – it is only a settlement-based dealing.

Settlement after Listing: When shares are listed in the stock market, then delivery or payment is settled.

📝 Example:
IPO issue price is ₹100, and GMP is ₹40. So buyer is ready to buy shares at ₹140, assuming listing will be at ₹140+.

B) Steps to Trade IPO Shares in the Grey Market

⚠️ Disclaimer: Grey Market trading is not illegal, but is not regulated under SEBI. Risk is high.

Here are basic steps that investors follow in grey market trading:

1️⃣ Find a Grey Market Dealer
To trade in the grey market, you have to contact a trusted local dealer or broker who deals in grey market.

2️⃣ Quote the GMP
You or the dealer decide what the current GMP is. Example: “Company XYZ GMP is running at ₹50.”

3️⃣ Agree on the Deal
The investor agrees that if his IPO is allotted, he will sell his shares at the GMP price — even before listing.

4️⃣ Execute Trade on Trust
Trade is done on pure trust – no paperwork. If allotment happens, shares are transferred to the buyer and the seller gets the money (or both adjust).

5️⃣ Settlement After Listing
After listing, both delivery and payment are settled through the dealer.

5. Understanding GMP Changes

The Grey Market Premium (GMP) of an IPO is not static – it can change every day, sometimes even every hour. Changes in GMP indicate the market sentiment around the IPO, investor demand, and possible listing performance. These changes are an unofficial barometer for investors through which they can understand how much “hype” or interest there is in the market for the IPO. In this section, we will understand what a change in GMP means and in which direction these signals help in investing.

What GMP Changes Signal

Grey Market Premium (GMP) is never constant – it can change every day, and these changes give a strong signal of the popularity of the IPO and investor sentiment. The fluctuations in GMP allow us to estimate IPO demand, oversubscription chances, and listing day performance.

🔍 1. Rising GMP – Positive Sentiment

👉 When GMP rises steadily, it means:

• There is strong demand for IPO in the market
• Retail and HNI investors are highly interested
• There is a high chance of profit on IPO listing
• Company’s image and fundamentals are considered strong in the market

🔻 2. Falling GMP – Weak Sentiment

👉 If GMP is falling or volatile, then understand:

• Investors’ trust is decreasing a bit
• It is possible that subscription is getting weak
• Expected profit on listing may be low or even zero
• Market conditions or company-specific news may have made sentiment negative

⚠️ 3. Flat or Zero GMP – Neutral Sentiment

• There is a lukewarm response to the IPO
• Investors are unsure about the chances of listing gain
• People are looking from a long-term view, not expecting short-term gain

✅ Note: GMP changes do not always guarantee the final listing price, but they are definitely an early indicator. Therefore, use them as a signal – not as the only decision-making tool.

6. How to check IPO GMP?

Whenever a new IPO comes to the market, investors first check the GMP (Grey Market Premium) to get an idea of the profit they can earn on the day of listing. GMP is an unofficial indicator that shows the demand and sentiment in the market for the IPO. But there is no official SEBI source to check GMP – for this you have to take help of trusted IPO tracking websites, Telegram groups or grey market dealers. In this section, we will see how GMP is calculated and how you can check the GMP of any IPO.

A) How to Calculate Grey Market Premium?

It is quite simple to calculate the Grey Market Premium (GMP). It is basically the difference between the prevailing price of the IPO in the Grey Market and the Issue Price.

👉 Formula:
GMP = Grey Market Price – IPO Issue Price

📌 Example:
If the Issue Price of an IPO is ₹100, and its shares are trading at ₹145 in the Grey Market, then:
GMP = ₹145 – ₹100 = ₹45
That is, the GMP of this IPO is ₹45.

B) The GMP for a particular IPO is be calculated as:

To calculate GMP, usually the average price of unofficial deals happening in the market is looked at.

Some trusted IPO tracking websites, Telegram groups, or brokers track and publish this data.

👉 Step-by-Step:

1. Check trusted sources:
Visit popular IPO tracking websites (e.g. Chittorgarh, IPOWatch) or trusted financial forums.

2. Find the Latest GMP:
See what is the current IPO premium in the grey market (updated on a daily basis).

3. Compare with Issue Price:
By calculating the difference between issue price and GMP, you can estimate the approximate gain you can expect upon listing.

📝 Example:

• IPO Issue Price: ₹250
• GMP as per grey market: ₹70
• Estimated Listing Price = ₹250 + ₹70 = ₹320 (approx.)

✅ Note:
There is no official record in Grey Market, hence GMP values can vary depending on the source. These should be seen only as a sentiment indicator, not for final investment decision.

7. Special Cases

When we talk about IPOs, most investors only track the GMP of mainboard IPOs. But SME IPOs are a different game. The connection between the GMP behaviour and listing price is quite unpredictable. Sometimes the GMP of an SME IPO is low or zero, but there is a strong return on listing – or the opposite can also be the case. In this section, we will see what is the relation between GMP and listing price of SME IPOs, and what things retail investors should keep in mind.

SME IPO GMP V/S Listing Price

The relation between Grey Market Premium (GMP) and Listing Price of SME IPOs (Small and Medium Enterprises) is quite different from that of Mainboard IPOs. Reason? Lower liquidity, low retail participation, and trading only in lots on SME exchange platforms (like NSE Emerge, BSE SME).

Read This Article for more information : What is SME IPO in Share Market? Best Explained

🔍 Key Differences:
1️⃣ Volatility in GMP
The GMP of SME IPOs is quite volatile as participants are limited and demand-supply changes quickly.

2️⃣ Unpredictable Listing Price
Despite having high GMP, the listing price of SME IPOs can be either higher or lower than the expected price. Listing price depends on allotment, investor mood, and company fundamentals.

3️⃣ Low GMP, High Listing Surprise
Sometimes GMP of SME IPOs is low (or zero), yet a jump of 50-100% is seen on listing. That means GMP does not give an accurate signal in the SME segment.

4️⃣ Liquidity Impact
Due to low liquidity in SME stocks, the price movement after listing is fast – either an upper circuit or a sharp fall.

SME IPO GMP vs Mainboard IPO GMP – Key Differences

🔹 Aspect	🔸 SME IPOs	🔸 Mainboard IPOs
Investor Base	Limited (mostly HNI & informed retail)	Wide (QIB, HNI, Retail Investors)
GMP Reliability	Low – not always matches listing price	Medium to High – more reliable indicator
Volatility in GMP	High – due to low volume and participation	Comparatively Stable
Listing Price Movement	Highly unpredictable; often circuit hits	More predictable; aligned with GMP trend
Liquidity Post Listing	Low – Limited buyers/sellers	High – Actively traded
Lot Size & Trading	Traded in lots; only through SME platforms	Normal retail lot sizes; listed on NSE/BSE
GMP Tracking Sources	Limited & unofficial	Widely tracked on IPO websites and news portals
Risk Level	High – Sudden price jumps/falls	Moderate – More stable market reactions

8. Constraints of Grey Market Premium

Grey Market Premium (GMP) creates a strong buzz around IPOs, but there are some important limitations to using it. Retail investors should always remember that GMP is an unofficial and speculative tool — relying 100% on it can be risky.

🚫 Major Constraints of GMP:

1️⃣ Unofficial & Unregulated
GMP has no official source. It is totally based on grey market dealers or informal sources — SEBI has no role in it.

2️⃣ Speculative in Nature
GMP is quite speculative, and can change based on news, sentiment, or rumor. Its prediction is not always accurate.

3️⃣ Lack of Transparency
On what basis GMP is being quoted, it is not clear. Sometimes insiders artificially inflate GMP to attract investors.

4️⃣ Short-Term Indicator Only
GMP only shows listing day gains. If you are a long-term investor, then GMP is not relevant for you.

5️⃣ Manipulation Risk
In popular IPOs, GMP is often deliberately inflated to create hype – this is especially common in SME IPOs.

6️⃣ Mismatch with Actual Listing
Sometimes GMP shows ₹50, but on listing day the stock opens with a gain of ₹10 – or sometimes even a loss.

✅ Bottom Line:
GMP can be a useful signal for short-term traders, but trusting it blindly can be dangerous. Always check company fundamentals, financials, peer comparison, and risk factors before investing in an IPO.

9. Conclusion: Summary and Final Thoughts on Using GMP in IPO Decisions

Grey Market Premium (GMP) is a powerful yet unofficial tool that gives investors an early signal of the potential gains of an IPO listing. Using it, retail investors can understand market sentiment and plan a listing day strategy. But, always remember – GMP is neither SEBI regulated nor 100% reliable. Sometimes GMP can be misleading, especially in SME IPOs or hype-driven markets.

👉 Smart investors use GMP only as a sentiment indicator – they also consider the company’s fundamentals, financials, valuation, and business model before taking a final decision.

✅ Final Tip:
Watch GMP, understand it, but do not follow it blindly. Whether to invest in IPO or not, this decision should be made on the basis of logical analysis and risk appetite – not just on the basis of the wind of the grey market.

10. FAQs: GMP in IPO

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