The IPO Grey Market is an unofficial, over-the-counter (OTC) market where investors trade IPO shares before they officially list on the NSE and BSE stock exchanges. These transactions occur through brokers and dealers and are not regulated by SEBI (Securities and Exchange Board of India). It provides an early indication of investor interest in an IPO.
The Grey Market Premium, or GMP, is the unofficial premium at which an IPO trades before its official listing. It indicates investor demand and price consensus for upcoming IPOs.
GMP is calculated as the difference between the grey market trading price and the IPO issue price.
For example:
If an IPO has an issue price of Rs 500 and is trading at Rs 600 in the grey market, the GMP is Rs 100 (600 - 500).
Investors and traders use the grey market to buy and sell IPO shares before allotment. The grey market operates through offline trading networks and functions in three key ways:
A high GMP often indicates that an IPO’s share price may open at a premium during its stock market listing on NSE/BSE. However, several factors influence IPO listing gains, including:
No. Since the grey market is unregulated with variable participation, the GMP is not always a reliable indicator of an IPO’s listing price. While it helps gauge market sentiment, the actual IPO listing price can be affected by:
While IPO GMP predictions are widely used, they should not be the sole factor in IPO investment decisions.