What is GMP in IPO?

Let’s say you’re buying a movie ticket for a new Shah Rukh Khan film. The official ticket price is ₹200. But since everyone wants it, someone is selling it unofficially for ₹300 outside the theatre. That extra ₹100? That’s your premium. Now imagine the same thing happening, but with IPO shares. That’s what GMP in IPO means.

What is GMP in IPO?

GMP stands for Grey Market Premium. It’s the extra price that people are ready to pay for IPO shares before they’re officially listed on the stock exchange (like NSE or BSE). Think of it as a kind of unofficial black market for IPO shares, unofficial, but it shows real demand.

For example, let’s say Reliance Chhotu Ltd. is launching its IPO.

• The issue price is ₹100 per share.
• But in the grey market, buyers are offering ₹140 per share even before the IPO is listed.

So, the GMP = ₹140 - ₹100 = ₹40

This ₹40 is the grey market premium. People are saying, “Bhai, take ₹40 extra, but give me the share before the listing!” They believe the share will list even higher, maybe at ₹160 or ₹180, so they want early entry.

Why Does GMP Even Exist?

Because people don’t like waiting. Especially when there’s a chance to make quick money. Here's why GMP exists:

• High Demand: Everyone wants to grab the IPO shares before others.
• Listing Gain Hope: People think they’ll make a quick profit when shares list at a higher price.
• FOMO: Fear of missing out. Some investors just can’t stay calm when a hot IPO is trending.
• Grey Market Dealers: Some unofficial dealers act as middlemen to buy and sell these shares before they are listed.

How is GMP Calculated?

There are no IIT formulas. Just basic demand and supply, like when Ola auto rates double during rain. The more people want something before it hits the market, the higher the price goes in the grey market.

Simple Formula:

GMP = Price people are paying unofficially – IPO issue price

Let’s Understand With a Real IPO Example: Zomato IPO

Imagine Zomato is launching its IPO.

• IPO Issue Price = ₹76
• In the grey market, people are so excited that they’re offering ₹96 per share (before listing)

So, GMP = ₹96 - ₹76 = ₹20

This ₹20 is the Grey Market Premium, the extra amount people are willing to pay before the shares are even listed. But why?

• Because they believe that when it lists on the stock exchange, it might go up to ₹110 or ₹120.
• They want to lock in early profit, just like booking a flight before prices surge.

What Does GMP Tell You?

GMP is like stock market gossip, just like your neighborhood aunt giving early scoops. Not official. Not guaranteed. But sometimes, spot on. It’s like when you hear, “Arrey beta, that new restaurant is always full, food must be amazing!” Maybe it’s true, maybe it’s overhyped. But people are clearly interested, and that interest matters.

If GMP is High:

• That means demand is strong.
• Investors are confident it will give listing gains.
• People are willing to pay extra before listing.

For example, an IPO with a price of ₹100 has a GMP of ₹70.
People are paying ₹170 unofficially before the share is even listed!
That’s a sign investors are super bullish.

If GMP is Low or Negative

• Danger ahead. The market isn’t excited.
• It could mean listing at a discount (you might lose money).
• Big players might be staying away.

For example, the IPO price is ₹390, but the GMP is just ₹2 or even negative ₹5. That’s like someone saying, “Bro, I’ll take your ticket, but only if you give me 5 rupees”. So, in short, the IPO might flop on listing day.

But Is GMP Legal?

It’s unofficial, but not illegal. GMP works in the grey market, which means it operates outside SEBI’s official rules, but it’s not banned either. It’s kind of like buying a cricket ticket from someone outside the stadium. Not through BookMyShow, not from the official counter, but still real. Not illegal like scam calls, and not official like NSE/BSE trades. Here’s what you need to know:

• You can’t access GMP trades via Zerodha, Groww, or any broker app.
• There’s no official platform; it’s mostly offline, through trusted dealers or brokers.
• SEBI doesn’t approve or regulate it.
• You won’t find any legal protection if things go wrong.

For example, imagine you're at a railway station. One guy says, "Bhaiya, I have confirmed train tickets, ₹200 extra." It's not from IRCT, but it works. That’s exactly how grey market IPO trades work. You need to know the right guy and trust him blindly, because there are no receipts or refunds.

How are IPO Shares Traded in the Grey Market?

The grey market is like an underground bazaar for IPO shares, not illegal, just unofficial. You can’t buy or sell these shares on Zerodha, Groww, or any stock app. Everything happens through word of mouth, WhatsApp groups, and grey market dealers. Here’s exactly how the magic and risk happen:

Investor Applies for IPO (The Seller)

• You apply for an IPO like everyone else.
• But you don’t want to take a chance on the stock market listing.
• You become a seller, you’re ready to sell your potential IPO allotment in advance, even before shares hit your demat account.

For example, you applied for ₹10,000 worth of shares in the Swiggy IPO.

Someone Wants the Shares (The Buyer)

• Another person (a buyer) thinks the IPO will list much higher.
• They want those shares before listing day to lock in profits.
• The buyer is ready to pay a premium, say ₹30 or ₹50 per share, above the IPO price.

Grey Market Dealer Becomes the Middleman

• A grey market dealer connects the buyer and seller.
• The dealer tells the seller, “You applied for IPO? I’ll pay you ₹30 extra per share if you agree to sell, but only if you get the allotment.”

Deal Gets Locked (But Not Guaranteed)

• Seller agrees to the price.
• Buyer agrees to buy.
• But nothing has been transferred yet. It’s a handshake deal based on trust.

IPO Allotment Happens

• If the seller gets the IPO allotment, they must transfer those shares to the buyer’s demat account once listed.
• Or in some cases, they may just sell it and pass the profit to the buyer.
• The agreed GMP amount is settled in cash, usually offline.

If no shares are allotted? The deal is cancelled. No harm done.

Conclusion

In conclusion, GMP in IPO shows how much extra people are willing to pay for shares before they’re listed. It’s unofficial, based on demand, and can help you guess the IPO’s listing performance. But remember: GMP is just a hint, not a guarantee. Use it smartly with other info like company strength and subscription data. Don’t apply blindly.