IPO Grey Market Premium or IPO GMP, Kostak Rates & Subject to Sauda

IPO Grey Market Premium or IPO GMP is a very important metric that every individual should check before subscribing to an upcoming IPO.

Although GMP is an unofficial way of predicting the listing price of an IPO it is an effective tool for any IPO investor who wishes to subscribe to an IPO.

IPO Grey Market Premium Today – June 2023 IPOs

Check out IPO Grey Market Premium or GMP of Forthcoming IPOs.

IPO GMP, Kostak Rates & Subject to Sauda – July 2023 IPOs

Check out IPO GMP, Kostak Rate & Subject to Sauda of IPOs expected to launch in July 2023.

IPO Grey Market Premium of Previous IPOs

Here you will find out IPO GMP, and Kostak Rates & Subject to Sauda of already launched IPOs.

IPO GMP, Kostak Rates & SS of Upcoming IPOs

Check out IPO Grey Market Premium of other major Upcoming IPOs.

What is IPO Grey Market?

The IPO Grey Market stands for the over-the-counter market where traders buy and sell shares directly through a broker.

These trades do not take place over any official channel or stock exchange. Companies who are prepping for IPO may choose to sell their shares to private investors through brokers.

Investors who buy and sell such stocks often do it for earning higher returns after the stock gets listed.

However, if the company’s IPO fails or the company couldn’t perform, then the price of these shares will go down south drastically as well.

This in turn will make the investor lose a lot of their investments in these Grey Market shares.

What is IPO Grey Market Premium?

IPO Grey Market Premium is the price decided in the Grey Market between buyers & sellers of the IPO even before the IPO application or shares are available in the exchange for trading.

Grey Market Price or Grey Market Premium helps a great way to IPO investors to whether subscribe to the IPO or not.

Premium is decided on the simple formula of demand & supply. If the demand is high & supply is low then the premium is high & if the demand is less & the supply is abundant then the premium is low.

This entire process happens in an unofficial way, so there is no guarantee that the GMP is giving a perfect indication of the listing price.

Although, Routine Investors understand that Grey Market Premium is a very good indicator of whether the IPO will perform or not. Hence, it is a very important tool to check before subscribing to an IPO.

Example of IPO Grey Market Premium or IPO GMP?

IPO Grey Market Premium or GMP is the premium price at which you can buy IPO shares in the grey market.

Suppose, an upcoming IPO has an issue price of Rs.300. The Grey market premium is Rs.500.

So, investors who are interested in buying this company’s shares, will not hesitate to pay Rs.800 (300+500) for each of the shares in the grey market.

In simple words, if an investor wants to buy the shares of a company that is coming up with its IPO in near future, can buy from the grey market by paying a premium price.

This premium price also indicates the future of the IPO and the company in the stock market.

If the GMP is high, then it indicates that people are willing to buy the shares and vice versa.

Grey Market Premium can be positive or negative. While in the above example, it was a positive premium of Rs.500 and thus buyers were willing to pay Rs.800 per share.

If the GMP had been negative, say Rs.100, and the issue price was the same as Rs.300 then the sellers are willing to sell those shares at Rs.200.

What is Kostak’s Rate?

Kostak Rate is a concept of the Grey Market. In the Grey Market, the shares which are about to get listed on the stock exchange after the launch of the IPO get traded.

When a company launches an IPO, interested investors apply for it. Here comes the Kostak rate. So, this is the amount that you pay for buying an IPO application in the grey market.

For instance, ABC Company is coming up with its IPO in the next month. Now a person, say, Mr. X has applied for 100000 shares in this IPO.

However, he is not sure whether the IPO will be a success or not and whether he will get the allotment or not.

On the other hand, there is a friend of Mr. X, Mr. Y, who is affirmative about ABC Company’s IPO. He anticipated that the IPO is going to be a great success.

Now, Mr. Y can individually apply for the IPO but he can also buy the application of Mr. X at a certain amount. Let’s say the amount is Rs.8000. So, this Rs.8000 is the Kostak Rate.

Kostak’s rate is decided as per every lot. Suppose, the lot size of ABC company’s IPO is 10000. So there are 10 lots in this application which Mr. Y is buying from Mr. X.

The kostak rate per lot is Rs.800 and thus he is paying a total of Rs.8000 for buying the whole application from Mr. X.

What is Subject to Sauda?

Subject to Sauda is a deal in the Grey market. As you know that investors can buy and sell IPO applications in the grey market before the allotment by paying the Kostak Rate.

Subject to Sauda is a deal in which both buyer and seller agree while buying and selling the IPO application that this will be only valid if the seller gets the allotment of the shares.

The deal will be null and void if the seller doesn’t get the allotment.

For instance, ABC Company which is coming up with the IPO has an issue price fixed at Rs.200 per share.

Mr. X wants to sell his application for 100000 shares for Rs.8000 and Mr. Y buys the same but they enter into the Subject to Sauda deal.

Now if Mr. X gets the allotment, Mr. Y will pay Rs. 8000 to Mr. X and also the amount for the shares. So the total amount that Mr. Y will pay is Rs.(100000*200)+8000 = Rs.2,00,08,000.

Here also the SS rate is quoted as per lot basis.

Benefits of investing using IPO GMP

The benefits of investing in the IPO Grey market by paying the premium price include –

• You can purchase the shares before they get listed on any exchange. If the IPO becomes successful, then you can have a havoc return on your investment
• The Grey Market premium indicates whether the IPO is going to be a successful one or not. You can decide by checking the GMP whether investors are interested in buying the shares of a company at IPO or not beforehand.
• Since you buy and sell these shares over the counter, you do not need to face much hassle of paperwork or any legalities.
• If you have shares of an upcoming IPO, you can sell them as well to investors looking to invest in that IPO. You can keep a fixed price for selling those shares and that is known as Kostak Rate.

IPO Grey Market Premium – Conclusion

Even though Grey Market is still illegal in India and so is the IPO GMP. However, this grey market premium helps a lot in understanding how the IPO will perform in the market once it is launched.

You can understand whether to apply for an IPO or not and at what price.

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IPO Grey Market Premium FAQs

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What is a Grey Market?

The grey market basically refers to a trade of a commodity or shares through distribution channels which are not authorized by the actual/original manufacturer. However, this situation isn’t limited to goods only. Shares are also sold out before getting listed on the indexes before IPO.

What is the grey market premium price?

Grey Market Premium price is also known as GMP price is the premium amount at which the grey market IPO shares or stocks are traded before getting listed on a stock exchange like BSE. In other words, the company’s stocks get sold outside the stock market at a particular price.

How do I apply for an IPO in the GREY market?

The grey market is an over-the-counter market, hence, there’s no need for official people or further authorization or stamp. You need to find a local dealer and now you can sell your application to an interested buyer. These local dealers are highly found in cities like Mumbai, Delhi, Jaipur etc.

How do I buy unlisted shares?

Unlisted shares can be purchased through many dealers in the market, through specific contacts in the market. There are many dealers who deal with stocks, however, these stocks come with liquidity risks and they may not get listed on the exchange ever.

What is Kostak’s Price?

To apply for an IPO, there are application price or application charges that come along and is known as the Kostak price. It is actually the premium amount at which IPO applications are being traded in the grey market.

Is GREY market buy or sell shares illegal?

Grey Market is basically trading that takes place before the stock of a company gets enlisted on the stock exchange. It takes place before the IPO release and the prices may change at any time. Hence, it is unofficial trading and hence, not “illegal”.

How to sell shares on the GREY market?

To sell shares in the GREY market, you need to find a local dealer first. Grey Market doesn’t have a regulatory body and hence, any person interested in selling the shares can choose their own buyers/sellers on a personal basis and sell the shares according to their prices.

What is Subject to Sauda (SS) in the GREY market?

Subject to Sauda also known as Subject to an allotment is a kind of deal in the Indian Stock market. Basically, an investor can unofficially sell an IPO application at an agreed price to the buyer. Here both the buyer and seller agree that the deal is only valid if the seller will get the allotment otherwise the deal will get cancelled.

What are Kostak and Subject to Sauda?

Kostak is the price of the application. It is basically a premium amount in rupees at which IPO applications are traded in IPO Grey Market. Whereas, the Subject to Sauda is a kind of deal that is decided by both buyer and seller on the firm allotment on the IPO Application. If one buys or sells the IPO application on the subject to sauda it simply means that one can get the said amount if one will get the allotment otherwise sauda will be cancelled.

How to determine IPO listing prices?

Here are simple maths to determine the IPO listing prices. Simply divide the number of shares sold by the amount of the paid-in capital to get the value of one share of stock. Although, the listing price of the IPO is decided by the syndicate of the investment banks. It is done by the performance of the IPO through a process called book building.

Is there any holding period in IPO?

Yes, there is a holding period which is known as the IPO Lock-up period. It is a contract provision that prevents insiders, who already have shares, from selling them for a certain amount of time after the IPO. A standard/general IPO holding period typically ranges from 90 to 180 days, while SPAC IPOs normally last for a duration of 180 days to one year.

Can I buy pre-IPO shares in India?

Yes, you can buy the pre-IPO shares as many times as you want before the IPO release in India. But, keep in mind, once the shares get listed, they will be in a holding period for 1 year.

When does an unlisted company issue an IPO?

Unlisted companies can issue an IPO. They can enter the public market through initial public offerings (IPOs) through a draft prospectus that has been filed with the Board, through an eligible Merchant Banker. This has to be done at least 21 days prior to the filing of the Prospectus with the Registrar of Companies (ROCs).

Can you sell an IPO immediately?

No, you can’t sell an IPO immediately as they have a one-year locking period, however; if the listing price is equal to or higher than the price you order to sell in pre-open; shares can be sold out at the listing price.

Can unlisted shares be Dematerialized?

Yes, shares of an unlisted company, under Indian Law, could hitherto either be held in physical form or in dematerialized form.

What happens if the stock becomes Zero?

If a stock becomes Zero, then this simply means that the equity value or the market cap of a particular company is zero. Now the stock will get delisted from the stock exchange, as it will have a zero market value.

Disclaimer – 

• IPO Grey Market Premium (IPO GMP) mention is valid for a specific date only.
• Top10stockbroker.com is not buying and selling IPO forms on IPO Grey Market.
• Do not subscribe for IPO by just seeing the premium Price as it may change anytime before listing.