IPO GMP

IPO GMP

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IPO before the IPO shares are formally listed on the stock exchange, they are traded on the grey market, an unauthorized and informal market. The IPO Grey Market is an unregulated, operator-controlled market whose existence is crucial to any IPO because it provides prospective investors with a sense of the mood of the share market and the level of demand for the offering.

Contents hide
1 What is IPO GMP? // What is GMP in IPO?
2 IPO Grey Market Dealers
3 Trading in IPO GMP
4 IPO Grey Market Rate Types
5 IPO GMP V/S Kostak
6 Grey Market Premium V/S Listing Price
7 IPO GMP Pros and Cons
8 FAQ's (Frequently Asked Questions)

The gray Market Premium is the amount an investor is ready to pay in the gray market above and beyond the IPO issue price. The price that IPO applications and lost are sold for in the Grey Market is known as the Kostak Rate or Subject to Sauda.

This chapter will help us learn the fundamentals of grey market trading, as well as the terms and actions that are employed in it.

What is IPO GMP? // What is GMP in IPO?

The difference between the price at which IPO shares are exchanged on the grey market and the IPO issue price is known as the Grey Market Premium, or GMP.

For instance, let’s say an investor is willing to spend an extra INR 300 to obtain an IPO share, even though the IPO issue price is INR 850. Accordingly, the IPO’s GMP is set at INR 300 per share. Listing price prediction is aided by IPO GMP.

Investors expect a listing price of INR 1,150 (IPO issue price plus GMP, or 850 + 300) in the scenario above. Even though there’s no guarantee the IPO listing price will exactly match the GMP, the GMP is one of the most important indications that usually help investors estimate the IPO price and make an investment decision based on it.

IPO GMP

IPO Grey Market Dealers

Unauthorized people who purchase or sell initial public offerings (IPO) shares on a black market (over-the-counter market) are known as grey market traders. The gray market dealers may also be obliged to underwrite a specific percentage of the initial public offering (IPO).

There are no registered traders in the IPO gray market because it is an unofficial and unregulated industry. To find out if they participate in the grey market and can assist you in finding buyers or sellers for your transactions, you should check with you local dealers. To see if there are any buyers or sellers or any discussion, you can also try leaving a message on InvestorGain.com’s IPO Grey Market discussion page.

Trading in IPO GMP

The announcement of the IPO issue price triggers the start of trading in the GMP of IPO (IPO GMP) and continues until the shares are listed on the exchange. Some of the main characteristics of IPO grey market trading include the following:

  • An unreported and uncontrolled market.
  • The majority of transactions in the grey market occur over the phone.
  • Trade settlement is done exclusively in cash, typically with Angadia’s assistance.
  • Mutual trust is the foundation of transactions in the grey market.
  • A round-the-clock, twenty-four-hour market.
  • The grey market trading for initial public offerings is not governed by any regulatory agency.
  • There are no authorized or registered dealers engaged.
  • For transactions carried out in the grey market, no official contracts are issued.

Three people are often involved in grey market trading: the dealer, the vendor, and the buyer. Grey market trading occurs via the trading of first public offerings (IPO) shares or IPO applications.

Finding a gray market dealer is the first step towards trading on the grey market for an investor. Because transactions on the black market are based only on trust, the dealer cultivates a clientele by obtaining referrals.

Consequently, if an investor is introduced to a dealer by a trustworthy and reputable source, he can begin trading on the grey market.

An investor can make an order over the phone after locating the dealer. As soon as there is any news of an IPO in the market up until the day before it is listed, trading in the grey market begins. On the day of listing, the settlement takes place at 9:45 a.m. The gray market has an additional 90-day expiration time. The agreement expires if an initial public offering (IPO) is not conducted within ninety days of the date of the gray market transaction.

Based on their net delivery position at equilibrium price, the dealers punch in their buy/sell orders on the day of listing.

Excel spreadsheets or basic Tally technologies are utilized for the bookkeeping of the deals. The angadia visits door-to-door on the settlement day in order to retrieve or deliver cash, depending on the situation.

There is nothing anyone can do in the event that either client defaults. Trading on the grey market is therefore dangerous.

Note: अंगडि़या एक लंबे समय से चली आ रही, पांरपरिक सेवा है जो गहने, नकदी और अन्‍य वस्‍तुओं सहित अमूल्‍य सामानों की शिपिंग का काम संभालती है । वे अनौपचारिक बिचौलिये हैं जो मौद्रिक लेनदेन करते हैं। नकदी-आधारित ग्रे मार्केट में, अनाडि़या इसके संचालन के लिए महत्‍वपूर्ण हैं। यह एक बेहद खतरनाक सेवा है जो सिर्फ विश्‍वास पर निर्भर करती है। अंगडियास डिलीवरी या नकदी संग्रह के लिए डोर-स्‍टेप सेवा प्रदान करता है।

IPO Grey Market Rate Types

The IPO GMP (GMP IPO) price can be positive or negative.

  • A positive or extremely high IPO GMP (GMP IPO) value suggests that the IPO might do well upon listing or bumper listing. For instance, the listing is probably going to occur at INR 130 (30% gain) if the IPO issue price is INR 100 and the GMP is INR 100.
  • Investors may be unsure if the stock will succeed after listing and may anticipate the listing to be at a discount if the premium is low or negative. For instance, the listing is anticipated to occur at INR 700 if the IPO issue price is INR 1,000 and the GMP is INR – 300.

 

Example of IPO GMP with Listing Gain

Let’s consider an example of an IPO name “RAM & Company” to understand Grey Market Premium (GMP) and listing gain:

Issue Price: INR 100 per share (This is the price set by the company for the IPO)

Grey Market Premium (GMP): INR 30 per share (This indicates the premium investors are willing to pay above the issue price on the grey market)

 

Calculations:

Estimated Listing Price: Issue Price + GMP = INR 100 + INR 30 = 130 per share

Assuming the actual listing price on the stock exchange is INR 130 per share:

Listing Gain per Share: Listing Price – Issue Price = INR 130 – INR 100 = 30 per share

Listing Gain Percentage: (Listing Gain per Share/Issue Price) * 100 = (INR. 30 / INR 100) * 100 =30%

Explanation:

  • In this example, the GMP of INR 30 indicates that investors on the grey market are optimistic about the company and believe the share price will rise after listing.
  • The estimated listing price of INR 130 is based on the grey market premium.
  • If the actual listing price matches the estimated price, the investor would earn a listing gain of INR 30 per share, which translates to a 30% gain on their investment.

 

 

Example of IPO GMP With Listing Loss

Here’s an example of IPO GMP with listing loss:

Scenario:

  • Company: XYZ Ltd.
  • Issue Price INR 50 per share
  • Grey Market Premium (GMP): INR 20 per share

 

Calculations:

  • Estimated Listing Price: Issue Price + GMP = INR 50 + INR 20 = INR 70 per share.
  • However, let’s say the actual listing price on the stock exchange is INR 40 per share:
  • Listing Loss per Share: Listing Price – Issue Price = INR 40 Rs. 50 = INR -10 (negative value indicates loss)
  • Listing Loss Percentage:(Listing Loss per Share/Issue Price) * 100 = (INR -10 / INR 50) * 100 = -20% (negative value indicates loss)

 

Explanation:

  • In this example, the GMP of INR 20 reflects optimism in the grey market, leading to an estimated listing price of INR 70.
  • However, the actual listing price at INR 40 falls short of the estimated price, resulting in a listing loss of INR 10 per share for the investor.

This translates to a 20% loss on their investment compared to the issue price.

IPO GMP V/S Kostak

Both IPO Grey Market Premium (GMP) and Kostak are related to the unofficial trading of IPO applications before their official listing on the stock exchange, but they have key differences:

GMP:

  • Represents the premium investors are willing to pay per share above the issue price in the grey market.
  • It’s a hypothetical price based on market sentiment and demand for the IPO shares.
  • Fluctuates frequently depending on various factors.
  • Not always a reliable representation of the asking price.

Kostak:

  • Represents the fixed price an investor is willing to pay for the entire IPO application (including all the shares applied for) in the grey market.
  • Fixed once agreed upon between buyer and seller, regardless of allotment. Buyer pays the Kostak price even if there seller doesn’t receive allotment.
  • Not directly comparable to GMP as it doesn’t represent a price per share.

Here’s a Table summarizing the key differences:

Feature

GMP

Kostak

Type of premium

Per share

Entire application

Price

Fluctuates

Fixed

Guarantees

None

allotment

Comparison

Not directly comparable to Kostak

Buyer pays regardless of allotment

Usefulness

Indicates market sentiment

Secures profit before listing

 

Remember:

  • Both GMP and Kostak are unregulated and risky.
  • Investing based solely on them can lead to losses.
  • It’s crucial to conduct thorough research on the company and the IPO before investing.

Grey Market Premium V/S Listing Price

GMP (Grey Market Premium)

Listing Price

In the IPO grey market, the premium an investor is willing to pay over the issue price is known as the GMP.

The opening price of the shares on the first trading day is known as the listing price.

GMP is a term used in unregulated/grey markets for initial public offerings.

Listing price” is used in markets that are subject to regulations.

Based on GMP, investors predict a listing price.

The issue and merchant banker set the listing price.

From the day the IPO issue price is disclosed until the listing day, GMP changes every day.

On the day of listing, the listing price is disclosed.

IPO GMP Pros and Cons

Advantages:

  • Boosts the likehood of profiting from the initial public offering (IPO).
  • Makes IPO shares available for trading prior to listing or subscription.
  • The option to buy IPO share even after the subscription window for the IPO has closed.
  • There is no cap the quantity of IPO trading applications.

Disadvantages:

  • Because the market is unregulated, there is a great of danger involved.
  • No grievance forum for fraud or other problems.
  • Loss potential in the event of a discounted listing.
  • No formal or written purchase or sale agreement; hence, no proof to be served.

The Grey Market can be advantageous when utilized properly. It is one of the metrics used to forecast the asking price. The Grey Market should not be utilized for gambling, but rather as a useful hedging tool. GMP provides a reasonable indication of an IPO listing and is based on supply and demand for IPO shares as well market sentiment.

Investors should monitor the GMP even though it is not always accurate because it can be used to access their investment choices and the performance of an IPO after listing.

Disclaimer: Information related to GMP of IPO is available to the audience on this blog only through News. ‘RUPAYPLUS’ Blog never advise to trade in the gray market or invest in IPO’s. Never invest in an IPO or stock without consulting your financial advisor. GMP prices are shown in this blog only through gray market news. We do not trade or deal in it nor do we advise anyone to trade in it.

You must read this Article : Mutual Funds

FAQ's (Frequently Asked Questions)

How to check gmp of ipo? (ipo gmp today // ipo watch gmp today)

The Grey Market Premium (GMP) indicates investor interest in an upcoming IPO. It’s not official, but here’s how to find it:

if you want to check gmp of ipo you should visit some financial websites like chittorgrah.com,  ipowatch, and  investorGain.com etc.

These sites often have a dedicated GMP section where you can find upcoming IPO GMP.

Remember, GMP is unregulated and not a guaranteed indicator of IPO performance. It’s just a market sentiment gauge.

How to calculate gmp of ipo?

You can’t directly calculate GMP as it’s based on unofficial trading. But, it reflects the difference between the IPO’s issue price and its grey market price.

For example, if the issue price is ₹100 and the grey market price is ₹110, the GMP would be ₹10.

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