The IPO Grey Market is an unofficial, over-the-counter (OTC) market where select dealers and investors buy and sell IPO shares before they are officially listed on stock exchanges. Unlike regular stock markets, the grey market is not regulated by SEBI, and all transactions happen outside official channels—often based solely on trust.
The IPO grey market plays a key role in indicating investor sentiment ahead of an IPO listing. Here, shares of upcoming IPOs are traded based on expected listing price, and the difference between the issue price and this traded price is known as the Grey Market Premium (GMP).
What is Grey Market Premium (GMP)?
The Grey Market Premium refers to the premium or discount at which the shares of an IPO are being quoted in the grey market prior to their official listing. For instance, if an IPO is priced at ₹100 per share and it trades at ₹130 in the grey market, the GMP is ₹30.
This premium reflects anticipated demand, and many investors track GMP to get a rough idea of how the IPO might perform on listing day.
4 Key Signals the Grey Market Provides
1. Investor Sentiment & Demand
The grey market gives early signals on investor appetite. A high GMP indicates strong demand, while a negative or flat GMP signals weak interest. Investment bankers and brokers often monitor this market to gauge listing expectations and fine-tune their strategies.
2. Unofficial Market Mechanism
This market does not involve actual delivery of shares until the IPO allotment is completed. Instead, trades are done on the basis of contracts, much like forward agreements. Since everything is unofficial, trust between parties is paramount.
3. Unregulated and Risky
As the grey market is not regulated by SEBI, it lacks transparency, legal recourse, and safety measures like circuit filters. Prices can be highly volatile, and participants must exercise caution while using it to make investment decisions.
4. Indicative but Not Definitive
Despite being unofficial, the grey market is widely tracked for cues. Issuers, merchant bankers, and even retail investors use GMP as a reference point. However, it’s important not to rely solely on GMP—market conditions can change rapidly.
What is Kostak Price in IPO Grey Market?
Understanding Kostak
Kostak Price refers to the premium someone is willing to pay for your IPO application, even before allotment is finalized. This allows an investor to lock in profits without taking market risk.
For example:
If you apply for an IPO and someone offers ₹500 as the Kostak price for your application, they are effectively buying your rights to the potential allotment and its listing gains.
How Kostak Works
Kostak deals are based on anticipated allotment and listing gain.
They are usually done before the allotment is finalized.
The actual transaction may vary depending on whether shares are allotted to the applicant or not.
Risk Factors
Kostak deals, like the grey market itself, are unofficial and unregulated. There are no legal protections, so all transactions are done at the investor’s own risk.
Important Takeaways on IPO Grey Market and Kostak
The IPO grey market is an informal indicator of how an IPO might perform.
GMP reflects early investor enthusiasm but is not a guarantee of listing success.
Kostak price lets investors sell their IPO applications and lock in early profits.
All grey market transactions are based on trust and outside legal protection.
It is advisable to use grey market data as a reference, not as a decision-making tool.
