What is GMP (Grey Market Premium) in IPO?

 

What is IPO GMP?

In an Initial Public Offering (IPO), the full form of GMP is Grey Market Premium. It is the additional amount on which the IPO shares are traded in the unofficial market before listing on the stock exchange. One can also check the upcoming IPO list with the GMP.

When exploring SME IPOs, you might come across the term SME IPO Grey Market Premium (GMP). This GMP indicates how much extra investors are ready to pay for shares before they officially start trading. It represents the difference between the IPO price and the price at which shares are traded in the unofficial grey market before they are listed on the stock exchange.

This trading is driven by speculation and the potential for profit, as participants seek to capitalize on anticipated price movements.

The grey market is unregulated, so prices can vary widely. This fluctuation is driven by investor sentiment and speculation. As a result, trading in this market can be high-risk for those seeking early profit.

How to check IPO GMP?

One can check the latest IPO GMP on various IPO-related websites to see the SME IPO GMP today for MSME IPO before they officially list on the stock exchange.

Example

For example, if the IPO offer price is Rs 950, but in the grey market people are ready to pay Rs 500 more to get the shares, then the GMP is Rs 500 per share. This means investors see the shares as worth Rs 500 more before they officially start trading on the stock exchange.

The GMP gives an idea about the listing price when they officially list on BSE or NSE. So, in the above example, the shares might list at around Rs 1,450 (950 + 500). While GMP doesn’t guarantee the exact listing price, it gives an indication of the listing price.

A comparison can be made between listing price and GMP. One can see the SME IPO GMP and listing price for comparison purposes. SME IPO GMP history can also be referred to for understanding the market trends.

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

1. Early Insight: GMP platforms give investors a sneak peek at how much IPO shares might be worth before they’re officially listed on the stock exchange. This early information helps investors see if the shares are in high demand and estimate their potential value.

2. Profit Potential: Retail investors are interested in GMP because it indicates the listing gain or listing losses on their debut.

3. Market Sentiment: GMP reveals the unofficial trading of IPO shares in the market. Retail investors use this information to understand current market trends and demand of IPO in the market.

4. Timing Advantage: GMP help investors figure out how much they might need to pay to get shares early. This allows them to make quick decisions if they want to buy into the IPO before it starts trading on the stock exchange.

Constraints of Grey Market Premium

1. High Risk: The grey market is not regulated, and prices can fluctuate due to speculation and rumors. This means you might end up paying more for shares than they’re worth once they officially list.

2. No Regulation or Oversight: GMP trades happen in unofficial markets without any formal oversight. This lack of regulation means there’s no official way to handle fraud or disputes, which can leave you at risk.

3. Uncertain Listing Price: GMP doesn’t guarantee the final listing price of shares. Even if the GMP is high, the actual price when shares start trading could be lower than expected, leading to potential losses.

4. Lack of Formal Proof: Transactions in the grey market often don’t have official records. This can cause problems if disputes arise or if you need to prove ownership of your shares.

5. Mislead Investors: GMP might not always provide accurate or complete information. Because they operate in unofficial channels, the data can be incomplete or speculative, which can mislead investors.

SME IPO GMP V/S Listing Price

 

Particulars	Grey Market Premium	Listing Price
Definition	The extra amount an investor is willing to pay over the IPO price in the grey market.	The opening price of the shares on their first trading day.
Market Type	Used in the IPO grey market (unregulated markets).	Used in regulated markets.
Prediction Basis	Helps investors predict the listing price.	As determined in the market on the opening day.
Change Frequency	Fluctuates daily from the IPO announcement until listing day.	Announced on the listing day.
Regulatory scope	Unregulated	Regulated

 

 

Example of Grey Market Premium for Better Understanding

 

For example, a company is launching an Initial Public Offering (IPO) with a share price set at ₹100. Before these shares officially start trading on the stock exchange, investors in the grey market are willing to pay ₹130 for each share.

Here’s how the Grey Market Premium (GMP) works in this case:

1. IPO Price: The company’s IPO price is ₹100 per share.

2. Grey Market Price: In the grey market, shares are trading at ₹130 each.

3. Grey Market Premium: The difference between the grey market price and the IPO price is ₹30 (₹130 - ₹100). This ₹30 is the GMP.

 

What This Means:

1. High Demand Indicator: The GMP of ₹30 suggests that investors are willing to pay ₹30 more than the official IPO price, indicating high demand and positive sentiment about the shares.

2. Potential Profit: If you buy shares at the IPO price of ₹100 and sell them in the grey market for ₹130, you could make a ₹30 profit per share before they officially list.

3. Price Expectation: The GMP provides an early indication of what the shares might be worth once they start trading on the stock exchange. In this example, the GMP suggests that the shares could list at or near ₹130, though the exact listing price may vary.

Conclusion

In summary, the IPO Grey Market Premium (GMP) shows an indicative premium people are ready to pay for shares before they are officially listed. This premium reflects investor speculation in unregulated markets and unofficial channels. SME IPO with GMP and the latest GMP are available on various website.

 

However, since GMP is based on unofficial trades and lacks regulatory support, it’s not a guaranteed predictor of IPO performance. GMP can be used as a reference, but it should be that noted it’s not a definitive measure of IPO performance.

 

What role does IPO Advisors play in successful IPO?

IPO Advisors play an important role in successful launch of an IPO. Their advisory role from IPO readiness, selecting the best merchant banker in India for SME IPO, various due diligence activities and IPO valuation guides the company throughout the IPO Issue and listing process. IPO platform in India provides information on upcoming IPOs on NSE Emerge and BSE SME and list of merchant bankers and anchor investors. Role of IPO advisor is important in the success of the listings.