The Grey Market Premium (GMP) is one of the most widely monitored indicators in the IPO community. It represents the premium over the official issue price at which IPO shares are traded in the unofficial, over-the-counter grey market before the listing date.
How is GMP Calculated?
GMP is determined purely by demand and supply forces. For example, if a company is launching its IPO with a cap price of ₹500, and grey market dealers are trading the shares at ₹650, the GMP is calculated as follows:
GMP = Grey Market Price - Issue Price = ₹650 - ₹500 = ₹150
This GMP suggests that the market expects the share to list at ₹650, which equates to a listing gain of 30%. It is highly influenced by subscription figures, anchor investor interest, and general stock market sentiment. Remember that the grey market operates outside the regulations of SEBI, NSE, or BSE, and transactions rely completely on mutual trust and individual dealers.