IPO Grey Market Premium: Latest IPO GMP & Kostak Rates

In this article, we will cover

  1. Introduction of Grey Market Premium
  2. What is IPO GMP?
  3. What is the pricing of an IPO GMP
  4. How to calculate the return on an IPO GMP?
  5. How are IPO GMP rates decided?
  6. Important points about IPO GMP
  7. Latest IPO GMP (As of January Calendar)
  8. Important points on Income Tax Implications for IPO GMP
  9. What is the Kostak rate?
  10. Difference between IPO GMP and Kostak rates

Introduction of Grey Market Premium

The GMP of an IPO is the average price that investors pay for future stock offerings. It can be used to predict the eventual listing price of a public offering, although it is not always accurate.  Recently, SME companies have been experiencing interest in IPOs, which has caused their GMP figures to rise. However, grey market activity and volumes have taken a hit recently in light of the massive declines in secondary markets.  With concern over the spread of Coronavirus resurfacing again, subscription levels have come down substantially, effectively mirroring investors’ sentiments. IPO Grey Market Premium

What is IPO GMP?

IPO GMP is the rate at which a company can raise funds from the public. It is also called the offer price, which is completely different from the issue price. The company sets the IPO GMP, but some companies charge a premium over the next few weeks. Many investors are willing to buy IPOs at a premium and keep the shares for up to two weeks before listing them on an exchange (like NASDAQ). This is a common practice among companies that want to sell more than they have in their offering.

Watch this video to understand, how to Apply For An IPO

What is the pricing of an IPO GMP

IPO pricing is set by the market and changes depending on the demand for a new company’s shares. They are usually higher than GMP rates but can vary from company to company. IPO GMP rates have historically been lower than issue rates, but they may be higher or lower depending on how much demand there is for an IPO at that point in time. An increase in demand will lead to an increase in Kostak rates and vice versa when there isn't as much interest in buying shares of a new company due to low demand or high prices (due to oversubscription).

How to calculate the return on an IPO GMP?

To calculate your expected return on investment, start by calculating the cost basis of your share through the following steps. 
  • Subtract any discounts applied during the underwriting/offering process;
  • Multiply by 100%;
  • Add any commissions paid during the underwriting/offering process, then divide that number by 100%.
This will provide an estimated figure of the return amount on a particular IPO. 

How are IPO GMP rates decided?

IPO GMP rates are the minimum prices at which companies can issue shares in the primary market. They are reviewed and revised on a regular basis, with new ones being announced every year by SEBI (Securities Exchange Board of India).  The government determines these prices based on market circumstances, such as demand for shareholding and supply of shares available for sale by companies going public. SEBI sets the minimum subscription amount according to its guidelines. These regulations apply only to listed companies that have not floated an IPO before listing their shares on any stock exchange. Therefore, retail investors cannot use this method of investing in IPOs. However, they are allowed to purchase them directly through Demat accounts. Private placement agents also play an important role in buying these shares before they can be sold off again.

Important points about IPO GMP

  • It is risky to base an investment decision on grey market IPO rates alone, as they can change quickly and may be volatile.
  • Research has shown that investors tend to react quickly to market sentiment and may overreact when investing in initial public offerings. Think calmly.
  • The information contained herein is sourced from market intelligence. Please note that IPO GMP rates are subject to change and may differ depending on geographies and dates.

Latest IPO GMP (As of January Calendar)

The following is the latest IPO GMP launches in India. This information can be used to understand India's general IPO market conditions.
  1. Sah Polymers
  2. Anlon Technology Solutions
  3. Rex Sealing
  4. SVS ventures
  5. Chaman Metallics
  6. Eastern Logics Infoway
  7. Ducol organics
  8. ESDS software
  9. CMS Green Technologies
  10. Hexagon nutrition

Important points on Income Tax Implications for IPO GMP

The income tax implications of trading on the grey market are based on the following guidelines.
  • If you have traded in the grey market, report it to the tax department and pay any applicable taxes.
  • If you have been using an intermediary to trade on the grey market, report it to their regulator, who will investigate and take action as needed.
  • If you have not traded on the grey market, but use them to buy and sell shares directly from a brokerage account, do not report this activity as income under any circumstances.
Note: The trades of the IPO grey market are generally settled in cash, which puts the tax liability directly on the applicant.

What is the Kostak rate?

Kostak is the cost of issuing securities to the public in an initial public offering (IPO). The Kostak rate is calculated based on the market capitalization and the number of shares issued. It is also referred to as the issue price or issue discount. This rate determines how much an investor has to pay for a share of stock in an IPO. In practice, it is usually just called "Kostak." The Kostak for an IPO can vary significantly from what was initially stated based on factors such as market conditions during the IPO filing period and price changes.

Difference between IPO GMP and Kostak rates

The Kostak rates, and IPO GMP rates are very different. The Kostak rate is a fixed price, which means that it does not change once the share is launched. The IPO GMP rate, however, is a variable price that can change depending on the market conditions. It is set before the official launch. 

Conclusion

An IPO grey market transaction occurs when an investor and a stockbroker enter into an agreement allowing the investor to sell their shares before the stock reaches an official trading price. This unwritten accord between two parties altogether depends on their trust in each other. To receive regular updates on the latest IPO GMPs and upcoming IPOs in the market, visit Samco Securities. We strive to provide fast and accurate news to our readers. Moreover, one can open the Demat account for free and have a great trading experience.
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