What is Grey Market Premium (GMP)?

Grey Market Premium or GMP is the price at which shares are traded before getting listed on the exchanges. It’s the difference between unofficial IPO share price minus its IPO Price. Before getting listed in the markets, people or interested parties start trading in IPO stocks in unofficial markets. GMP reflects investors’ sentiments. E.g. if the IPO price of the share is ₹153 whereas, in the grey market, it’s trading at ₹180, that means the grey market premium is ₹27 (₹180 – ₹153). 

Should one trade in an unofficial market or grey market?

The grey market is an unofficial market which is outside the scope of SEBI. So, it is advisable to stay away from the grey market. Although the grey market premium can show the potential sentiment for the stock, whether to invest in the IPO should not be based on mere GMP, one should do their own research and due diligence before investing in the IPO. 

Should you invest in an IPO based on GMP?

No. One should not invest in an IPO just based on Grey market premium.

Yes, GMP gives an initial picture about the listing gains/losses but the GMP is also dependent on how the market is reacting in general, how the economy is performing, any wars or major policy changes coming up, etc. The listing price of a share may or may not remain the same as the one quoted in GMP. Let’s take two examples, one wherein it got listed just the way GMP indicated whereas it didn’t get listed what the GMP indicated. 

Vishu Prakash R Punglia Limited engaged in the business of designing and constructing infrastructure projects came up with their IPO on Aug 24, 2023, and the subscription closed on Aug 28, 2023. The IPO Price band was ₹94 -₹99, being ₹99 the upper band. GMP reflected that the stock will list at a premium of ₹62, which means that the stock will list at ₹161. On its listing date, the shares were listed at ₹165, just as indicated by GMP. 

R K Swamy is another company that got listed in the markets in Mar 2024. It is engaged in the business of integrated marketing communications, customer data analysis, full-service market research and syndicated studies. The subscription date for the IPO was from Mar 04, 2024, to Mar 06, 2024. The IPO price band was ₹270-288/share, with ₹288 being the upper band. GMP reflected that the stock will list at a premium of ₹90, which means that the stock will list at ₹328. On its listing date, the shares were listed at 250, completely different to what was indicated by GMP. 

Therefore, it is wise to due our own due diligence before investing in any IPO and not simply relying on GMPs for investment purpose.