What is GMP in IPO?

GMP in IPO is also known as Grey Market Premium, which means the unofficial premium paid for IPO share trades before the listing on the Stock Exchange. This premium indicates market demand and Sentiment. There are two types of trading in the Grey Market:

The trading is selling or buying an IPO application at a particular rate or premium.
Trading is selling or buying the shares before they get listed on the stock exchanges.

IPO GMP Example

GMP stands for Grey Market Premium, as there is a difference between the price at which IPO shares are traded in the grey market and the price at which the IPO issues are priced. For example, if the IPO issues prices are 750 and an investor is willing to pay an additional INR 200 to get the IPO share. Then the GMP of the IPO is INR 200 per share.

So the IPO GMP helps to predict the listing price. So in the example above investors anticipate a listing price of INR 950 (IPO issue price plus GMP that is 750 + 200). There is no guarantee that the IPO listing price will match the GMP. So the GMP is one of the most important indicators that generally help investors predict the IPO price and also make an investment decision.

Real-World Example of GMP in IPO

Let’s take a real-life example of a Swiggy IPO, where the Swiggy IPO update, as their Grey Market Premium Falls. Swiggy IPO opened on Wednesday, November 6, and the last day for the investor to get the subscription is Friday, November 8th.

The IPO worth is INR 11,327.43 crore, which includes fresh issues of over 115 million shares and also offers for the sale of around 175 million shares, all at a face value of INR 1 per share.

2nd day of Subscription Data

Retail Individual Investors which led the way subscribing at 0.84 times.
Non-institutional investors subscribed 0.14 times.
Qualified Institutional Buyers which followed with the subscription rate of 0.28 times.

As of the last day of subscription, on Friday, unlisted shares were trading at a premium of just INR 2 or about 0.51% over the upper end of the price band at INR 390. And this is quite a drop from the INR 9.50 Premium, which we saw when the IPO first launched on the 6th of November.

So with the subscription period ending day was Friday the key date was:

Basis of Allotment: This is expected by Monday, 11th of November.
Demat Credit: This was expected by the Tuesday, 12th November.
Market Debut: Here the Swiggy share will be listed on BSE and NSE on Wednesday, 13th November.

How are IPO shares traded in the grey market?

Here is the process of trading IPO shares in the grey market involves the following steps. So here you need to follow to know how IPO shares traded in the Grey Market:

The investors apply for the shares via IPO. It is a complete financial risk as the shares can sometimes be allocated below the issue price. So these are referred to as sellers.
So some individuals find the value of the share greater than the issue prices. They get allocated through the IPO allotment process. These are referred to as buyers.
To buy IPO shares the buyer places the order at a certain premium through a grey market dealer.
Here the dealer contacts the sellers who had and asks them to sell their IPO stocks at a grey market premium.
If the seller does not want to face the risk of stock market listing. So here they can sell the IPO shares to the grey market dealer at a fixed amount.
So after receiving the application details the dealer sends a notification to the buyer about the share which they have purchased.
If the share gets allocated to the seller. It is up to them to decide to sell at a certain price or transfer it to the buyer's demat account.
So the deal will automatically get cancelled if no shares are allocated to the seller.

Conclusion

In conclusion, we have mentioned all the details that you have to know about What is GMP? its types, and many more. We hope the information in this blog is helpful and informative.

Saniya

I am a writer, and this sentence speaks louder than anything, I love to play with words because I have a passion for writing easy and good-quality content that reflects simplicity. Readers like content that is straightforward with simple language. My priority has always been to deliver content that connects with the reader.