What IPO GMP Actually Is
Grey market premium explained: who quotes it, what a kostak and subject-to-sauda rate mean, why the number moves, and the evidence on how well it predicts listing price.
Published 8 September 2026 · IPO Sahayak
Grey market premium is the most searched number attached to any Indian IPO and the least understood. It is not a valuation, not a forecast, and not produced by anything resembling a regulated market. It is a live quote from a small private market, and it is useful only if you know exactly what it is measuring.
What the number actually is
Before an IPO lists, its shares cannot be traded on any exchange — they do not exist in a tradeable form yet. A small, informal dealer network quotes prices for them anyway. The grey market premium is the gap between that quote and the issue price.
If an issue is priced at ₹200 and the grey market premium is ₹40, dealers are quoting roughly ₹240. The implied listing gain is 20%. That is the whole calculation — and the reason people watch it is simply that there is no other pre-listing price signal available.
Who sets it, and how it is settled
There is no exchange, order book or clearing house behind these quotes. A relatively small group of dealers — historically concentrated in Gujarat — transact with each other and with applicants over the phone and on messaging apps. Settlement happens on trust after listing, when the difference between the agreed price and the actual listing price is paid in cash.
Nothing about that arrangement is recognised by SEBI, cleared by NSE or BSE, or enforceable if a counterparty walks away. Treat published GMP figures — including the ones on our own GMP page — as a report of what dealers are quoting, not as a price you can transact at or rely on.
Kostak and Subject to Sauda
Two related quotes come up alongside GMP, and they price different things.
Kostak rate
A flat amount someone will pay to buy your entire IPO application before the allotment result is known. You hand over the application; you receive the Kostak amount whether you are allotted shares or not. It prices the option on an allotment rather than the shares themselves, which is why it is usually a modest number.
Subject to Sauda
A deal that only becomes live if you are actually allotted shares. If you get nothing, the deal does not exist and no money changes hands. Rates quoted “subject to sauda” are therefore higher than Kostak rates for the same issue, because the buyer is not paying for the blanks.
Why the number moves
- Subscription figures. A strong QIB number in particular tends to pull premiums up, since institutional bids cannot be withdrawn.
- The broader market. A sharp fall in the index in the days before a listing takes premiums with it.
- Dealer positioning. This is the part outsiders never see. Dealers carrying a large position have an interest in the quote, and daily volumes are small enough that a few trades move the published figure.
Thin volume is the core problem. A number that a handful of participants can move is a number that can be moved deliberately — including by people who benefit from retail investors seeing a high premium during the subscription window.
How well does it predict the listing price?
Loosely, and unevenly. The direction is right more often than not for large mainboard issues with heavy institutional participation — a strongly positive premium on a well-subscribed mainboard IPO usually does precede a positive listing. The magnitude is far less dependable: premiums routinely overstate the eventual gain, and the last two or three days before listing often see sharp revisions.
It is least reliable exactly where people lean on it most: SME issues, where both the grey market and the listed stock are thin, and heavily hyped mainboard issues, where the premium reflects the hype it is supposed to be measuring. Our closed IPO page shows issue price against actual listing price for past issues, which is a more honest reference than any pre-listing quote.
Using it sensibly
The reasonable use of GMP is as one sentiment reading among several, checked against things that are actually verifiable: the category-wise subscription figures, the financials and peer valuation table in the red herring prospectus, whether the issue is a fresh issue or an offer-for-sale, and the risk factors the company discloses itself.
The unreasonable use is treating it as an expected return and sizing an application around it. An IPO application is a lottery ticket whose odds are set by the allotment mechanics, not by the premium; and if you are allotted shares, what you own is a stake in a business, priced by the market from listing day onward regardless of what the grey market said the week before.
Common questions
What does IPO GMP mean?
Grey market premium is the amount above the issue price at which an IPO’s shares are being quoted in an unofficial market before they list. A GMP of ₹40 on a ₹200 issue means dealers are quoting around ₹240 for shares that do not yet exist in tradeable form.
Is the IPO grey market legal in India?
It is unregulated rather than explicitly illegal. SEBI does not recognise it, no exchange clears it, and the deals are settled on trust between a small number of dealers. If a counterparty defaults there is no regulator or court process to fall back on.
Does a high GMP guarantee listing gains?
No. GMP is a live quote from a thin, private market, not a forecast. It can and does move sharply in the days before listing, and issues have listed below their issue price while carrying a positive premium days earlier.
What is the difference between GMP and the Kostak rate?
GMP is quoted per share. The Kostak rate is the flat price someone will pay to take over your entire IPO application before allotment is known — you get that amount whether or not you are allotted anything.
Why does GMP change every day?
It moves with subscription figures, the broader market, and how much stock the dealers themselves are carrying. Because daily volumes are small, a handful of trades can move the quoted number substantially.
This is general information, not investment advice. IPO Sahayak is not a SEBI-registered investment adviser or research analyst. Rules, limits and tax rates change — check the issue's offer document and the current SEBI and exchange circulars before you act on anything here.