What is GMP in IPO

This question is very important for people who want to earn money by applying IPO in the Share Market. Because it will help you to understand the exact perceptions of position and demand of the IPO of a company in the market to think to invest or not. I will tell you, that I used to apply for an IPO of a company when the company’s share shows the best GMP. So in the post, you will learn all about the GMP in the IPO to know the effects of GMP.

What is the full form of GMP?

GMP stands for Grey Market Premium in the IPO.

What do you mean by GMP in IPO?

In the world of finance and investment, the Initial Public Offering (IPO) is a crucial event. It marks the moment when a private company decides to go public and offer shares to the general public for the first time. One of the key terms associated with IPOs is GMP, which stands for Grey Market Premium. GMP indicates the market’s perception of the company’s value and its potential for listing gains.

What are the Basics of IPO?

Before we explore GMP, it’s essential to understand the basics of an IPO. An IPO is a significant step for a company’s growth and funding. It allows the company to raise capital by selling shares to the public. This capital can be used for expansion, research, development, or debt reduction.

What is GMP?

Grey Market Premium (GMP) is the premium at which a company’s shares are trading in the grey market before they get officially listed on the stock exchange. The grey market operates outside the regulated stock exchanges, and the trading of shares here is unofficial. GMP indicates the market’s perception of the company’s value and its potential for listing gains.

What are the features of GMP?

These features can explain GMP-

  1. Grey Market is an unofficial market for the Pre IPO.
  2. GMP is premium per share.
  3. As GMP is unofficial, thus there are no regulations (rules and regulations) involved.
  4. All transaction for GMP is done in cash.
  5. No written communication for Grey Market, small slips of paper are the contract.
  6. There is no official dealer – All buying and selling is through word of mouth and trust only.
  7. The higher GMP means a higher possibility of the IPO getting listed at a bumper price.
  8. GMP activity can start before the price band announcement.

What is the significance of GMP in IPO?

GMP serves as an essential indicator for potential IPO investors. It provides insights into the market sentiment and the demand for the company’s shares even before they’re officially listed. A high GMP suggests strong investor interest, while a low GMP might indicate cautious or tepid market sentiment.

List of Factors Influencing GMP?

These are the several factors that influence GMP in IPOs:

  1. Company Performance: Strong financials, growth prospects, and a solid business model often lead to a higher GMP.
  2. Market Conditions: Overall market conditions, investor sentiment, and the performance of similar companies in the industry can impact GMP.
  3. Industry Trends: The current trends and future outlook of the industry in which the company operates can affect GMP.
  4. Perception: Public perception of the company’s brand, products, and management play a role in determining GMP.

How to calculate GMP?

GMP is calculated as the difference between the price at which shares are trading in the grey market and the IPO price. It’s expressed as a percentage of the IPO price.

For example, if the IPO price is 20, and the grey market price is 24, then the GMP would be 20%.

Company nameIPO PriceGMPIPO listing
SBFC Finance IPO5726 (45.61%)83
Concord Biotech IPO741122 (16.49%)863
Oriana Power SME118115 (97.46%)233
GMP Example table

List of best sites for GMP for the Latest IPO

Here is the list of some sites that shows GMP prediction of the latest and upcoming IPOs-

list of sites for GMP
1 Topsharebroker.com
2 Ipowatch. in
3 Chittorgarh.com
4 Ipowala. in
5 Sharemarketexpress.com
6 5paisa.com etc

What is the impact of GMP on IPO Investors?

GMP directly impacts IPO investors, particularly those who participate in the IPO with the intention of making quick listing gains. A high GMP could lead to significant initial listing gains, but it also carries higher risks. Investors need to carefully evaluate GMP to make informed decisions.

Evaluating GMP: Dos and Don’ts

When evaluating GMP, here are some dos and don’ts for IPO investors:

1. Research the company’s fundamentals, financials, and growth prospects.
2. Consider the overall market conditions and investor sentiment.
3. Consult financial experts or advisors for insights.
1. Rely solely on GMP; it’s just one factor in the decision-making process.
2. Overcommit based on high GMP without understanding the associated risks.
Do and Don’t

GMP and Market Sentiment

GMP is a reflection of market sentiment and demand for the company’s shares. A high GMP indicates bullish sentiment, while a low GMP might suggest a more cautious approach by investors. It’s essential to gauge the broader market sentiment along with GMP to get a comprehensive picture.

What is the role of GMP in IPO Pricing?

GMP can influence the final pricing of an IPO. If the GMP is significantly higher than expected, the company may choose to revise the IPO price upwards, aiming to capture the higher market value. Conversely, a lower-than-expected GMP might lead to a more conservative IPO price.

The Relationship Between GMP and Listing Gains

Listing gains refer to the increase in the share price on the first day of trading after the IPO. There’s often a correlation between high GMP and substantial listing gains, but it’s not a guarantee. Other factors, such as market conditions and the company’s performance, also play a vital role in determining listing gains.

Risks Associated with High GMP

While a high GMP can be enticing, it comes with risks. The market sentiment that drives a high GMP can change rapidly, leading to price volatility. Additionally, if the GMP is not sustainable, investors who entered at a high premium could face losses.

How to manage IPO Risks?

To manage the risks associated with high GMP and IPO investments, investors should:

  1. Set Stop-Loss: Define a stop-loss strategy to limit potential losses.
  2. Stay Informed: Keep track of company news, market trends, and any changes in GMP.
  3. Long-Term Perspective: Consider the long-term potential of the company beyond the initial listing gains.
  4. Diversify: Spread investments across different IPOs and sectors.

How can you use GMP information when applying for an IPO?

When applying for an IPO, you can use the grey market information to determine the demand for the issue. For instance, if the GMP for an IPO is low, it is advisable to stay away from such issues since it signifies low demand. However, if the investors are willing to pay a high premium for an IPO in the grey market, you can consider applying for such an issue.

What is the purchaser only in GMP?

For every seller, there must be a buyer in the market. The same is true in the GMP market. But at some point, there are only buyers and no sellers. In the stock market, we call this the upper circuit. The same thing can happen in the GMP market if no investor is willing to sell their application. They expect a better return on the day of listing or want to hold it for a long time. One should consider this as a positive point.

What is the seller only in GMP?

GMP is traded over the counter through GMP dealers. The GMP seller only means that there is no buyer in the GMP market. This is similar to the lower circuit where there are sellers but no buyers. This situation can be caused by low IPO subscription, overselling, or negative market sentiment. This means that the listing can be at par or below the GMP price. One should consider this as a negative point.

This scenario may be temporary and may change before the day of listing. Therefore, one should always check the fundamentals and business model of the company before applying.

The Future of GMP

The importance of GMP in IPOs is likely to remain, given its role in gauging market sentiment. However, as the market evolves, new indicators and metrics might emerge to complement or even replace GMP in the IPO evaluation process.

GMP Conclusion

In conclusion, Grey Market Premium (GMP) is a significant concept in the world of IPOs. It provides valuable insights into market sentiment and potential listing gains. As an investor, understanding GMP and its underlying factors is essential for making informed decisions in the dynamic world of IPOs.

FAQs on GMP in IPO

1. Should I apply for IPO in case of High GMP?

Yes, you should apply to get high profits but must know that it is only a perception so you may get a loss also if GMP get failed.

2. What is Kostak rates?

Kostak Rate is the rate at which you can sell the IPO application for a fixed price irrespective to you get an IPO allotment or not.

3. What is subject to Souda?

‘Subject to Souda’ is another term frequently used in the grey market to denote a Sauda for buying a firm allotment application. In other words, this is the amount buyers are ready to pay for an application that has been allotted shares.

4. Is GMP a good indicator for IPO?

Yes, It is a useful indicator of the listing gains an investor might make. If the GMP is high, it could mean that the share price may list at a higher price on the stock exchange. A high GMP could indicate high demand for the IPO and vice versa.

5. Can GMP be negative?

Inversely, if the demand is low or the market sentiment is that the valuation is expensive, then the grey market premium can be low, zero, or negative. If the GMP is negative, it suggests that the stock may get listed below its issue price.

By larry Brown

A senior accountant, and banking & finance expert, with five years long experience in banking, finance, Investment, and money management.