DRHP LensEvery IPO week, “GMP today” becomes the most searched number in Indian markets. It is also the least reliable one. Here is what the grey market premium actually measures, why it moves the way it does, and how to use it without letting it make the decision for you.
What GMP means
GMP, or grey market premium, is the price above the upper end of the price band at which some traders are willing to buy IPO shares before the shares are allotted or listed. If an issue is priced at ₹500 and the GMP is ₹60, the grey market is implying a listing price of roughly ₹560, a premium of 12%.
The trade happens outside the stock exchanges, between individuals and dealers, usually on trust and in cash. There is no exchange, no clearing corporation, no contract note and no SEBI oversight. That single fact explains most of what goes wrong with GMP.
Kostak and subject-to-sauda, in plain words
- Kostak rate is a fixed amount paid for an IPO application, whether or not it is allotted. The applicant sells the application; the buyer takes the allotment risk.
- Subject-to-sauda is a fixed amount paid only if the application is allotted. No allotment, no deal.
- GMP itself is quoted per share and is settled against the listing-day price.
All three are quotes from an unregulated market. None of them is a price you can rely on getting.
Why GMP is often wrong
- Thin and opaque. A handful of dealers in a few cities set the quotes. A small number of trades can move the number sharply.
- It follows subscription, not fundamentals. GMP usually rises with day-two and day-three subscription numbers. It is a sentiment gauge, not a valuation.
- It can be pushed. Because nobody verifies the quotes, a rising GMP can create the demand it claims to predict.
- It says nothing about month six. Even when GMP gets the listing price right, it tells you nothing about the lock-in expiries, earnings or valuation that decide what happens after listing day.
What to read instead (or alongside)
If you are deciding whether to apply, four sections of the Red Herring Prospectus tell you far more than any GMP quote:
| Section of the RHP | What it answers |
|---|---|
| The Offer | How much is fresh issue (money to the company) and how much is offer for sale (money to existing holders). |
| Basis for Offer Price | The P/E, peer comparison and weighted average cost of acquisition paid by insiders, so you can see whether you are paying a fair price. |
| Risk Factors | The company’s own list of what can go wrong, usually ranked by the issuer’s view of importance. |
| Capital Structure | Promoter holding, pledges and lock-ins, and who sold shares in the last year at what price. |
Our DRHP red-flag checklist walks through each one, and DRHP Lens scans the document for you and cites every finding to a page.
A sensible way to use GMP
Treat GMP as a weather report on listing-day sentiment, nothing more. A high GMP on a richly priced, OFS-heavy issue is a reason for caution, not comfort. A low GMP on a reasonably priced, fresh-issue-led company may simply mean the market has not noticed it yet. Check the live IPO GMP tracker on our home page if you want the number, then read the document before you decide.
Run the red-flag scan
Upload a DRHP, RHP, NCD prospectus, AIF PPM or annual report. The scan runs in your browser, nothing is uploaded, and every finding is cited to a page.
Analyse a documentFrequently asked questions
What is GMP in an IPO?
GMP (grey market premium) is the unofficial premium over the IPO price at which some traders buy shares before listing. It is quoted in an unregulated market and is not published by SEBI, NSE or BSE.
Is IPO GMP legal?
The grey market operates outside the exchanges and is not regulated by SEBI. There is no investor protection if a counterparty does not pay, so investors should not rely on it or trade in it.
How accurate is IPO GMP?
GMP tracks subscription sentiment and is sometimes close to the listing price, but it often moves sharply in the last days and can be well off. It says nothing about performance after listing day.
What is the difference between kostak and subject to sauda?
Kostak is a fixed price paid for an IPO application regardless of allotment. Subject to sauda is paid only if the application gets an allotment.
Where can I check IPO GMP today?
Several tracker sites publish daily GMP quotes, and DRHP Lens shows a live GMP panel on its home page. Use it alongside the offer document, not instead of it.
This guide is general education about how Indian offer documents are structured. It is not investment advice or a recommendation to subscribe to any issue. Regulations change; always read the current offer document and the SEBI regulations it refers to, and consult a SEBI-registered investment adviser before you invest.