Grey Market Premium

                  

#Termoftheday - Grey Market Premium

Grey Market Premium, as explained by Pratik Mehta, is the extra price which is charged over & above the issue price for any Upcoming IPO. GMP varies according to the demand of the IPO amongst the public before the issue.

Rohit Sachdev explains Grey market premium as the premium which people are willing to pay for an ipo above the issue price to buy it from people before the allotment. It gives an indication of demand and supply for an IPO.

Mukesh Gupta adds Grey market premium or kostak price is the premium amount which grey market trader is willing to pay before an IPO opens to purchase applications from retailers. For example if IPO price is Rs 100 per share and someone is ready to pay the applicant Rs. 110 per share than Rs. 10 is the gray market premium. It is illegal to trade equity outside market and before IPO gets listed, so it’s called grey market. 

Grey market premium indicates demand of an upcoming stock, higher the premium, better chances that listing will be on higher price, but we need to understand the size of IPO and operators interest also before applying for an IPO just on the basis of GMP. Some IPO would fly without fundamentals because of high operator interest while others won't, one who wants to invest for long term should not care about GMP.

J.K Sobti further says Grey Market Premium - as the term itself defines the Gmp is the premium available in the market for a new Ipo before the share gets listed. The premium is a combination of demand, supply, issue size, promoters, industry & so many other factors. Grey market premium is to an extent indicator of IPO success but should not be the sole criteria for applying to an Ipo because like equity trading it may have been artificially jacked up by operators

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