An IPO GMP stands for the difference between the price at which IPO shares are traded in the grey market and the issue price set by the company. This is how it works: when a company is getting ready for an IPO, the price at which it will let its shares be issued is called the issue price. On the other hand, the price at which the same shares are traded prior to such shares being listed on the stock exchanges is called the grey market price. The period from filing by an issuer with the regulatory authorities and till it starts trading on the stock exchanges is referred to as the grey market period. A buyer in this period could sell and a seller could buy these unlisted shares without the help of any official channel or stock exchange.

The grey market is an unofficial market where one can buy and sell shares before their actual listing in a stock exchange. GMP is one indicator of the estimated investor sentiment toward an IPO.

If GMP is high, then the investor’s confidence in the company is reflected and its share price will surge after listing it in the stock exchange; a low GMP indicates investors are thinking negative about the company and the share price would go down when it lists. This is not always a good investment indicator to show how well the performance of the share price may go once the IPO is listed on the stock exchange. On this listing, various factors may come in to influence the share price, including the institutional demand or general market condition. GMP is just a measure of investor sentiment at a given time.

The actual performance of the shares will be determined by various factors such as company performance, general market conditions, among others. The IPO GMP, on the other hand, seems to attract the attention of investors due to one major factor. Therefore, in this paper, an in-depth effort is made towards rendering an understanding of GMP, IPO, and their significance in IPO grey market sentiments.

The IPO GMP indicates the market sentiment for the IPO. If the GMP is positive, it means that the shares traded above the issue price, which shows high demand for the IPO. A negative GMP will indicate that the shares traded below the issue price, showing that demand is weak.

Now, let us estimate how to find the listing price after involving a premium. Let the grey market rate for an IPO be ₹100 and the IPO price, loosely speaking, be ₹200. The estimated listing price will be around ₹300. And according to these calculations, the listing gain will be 50% of the IPO price. This may vary in the actual listing of an IPO, per the grey market indications, according to the bull/bear market or demand for the company’s shares. We have witnessed some IPOs that had lower grey markets but listed higher with gains, while a few IPOs in 2021 had higher grey markets but had lower listings. Since the grey market is always one of the strong factors in calculating IPO listing gains, we strongly suggest that investors take an update on the grey market rates for information purposes only and not base any trading decisions based on them.