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In the context of IPOs, the grey market is where unlisted IPO shares are traded. And the grey market premium or GMP is the amount, over and above the issue price, that traders are willing to pay or ask for to trade these yet to be listed IPO shares. You will have to pay, Issue price + GMP = 100 + 50 ⇒ ₹150 per share.
Can IPO be issued at discount?
In the recent past we have seen quite a few IPOs that got listed at a discount to the issue price and prices have remained lower since. For example, in the case of ICICI Securities, the issue got undersubscribed and the listing was almost at a 20\% discount to the issue price.
The listing price is decided based on market demand and supply of the shares and aims to strike a balance between the two. This process is called price discovery. If the demand for the shares exceeds the supply, then the listing price is typically higher than the offer price, and vice-versa.
What are the conditions for issue of shares at premium?
Shares are considered to be issued at a premium if the amount received for issued shares is greater than the face value of shares. The premium is calculated by finding the difference between the share issue price and the par value of shares offered for sale.
Why IPO are listed on discount?
Aggressive pricing of the IPO This is one of the most common reasons for an IPO listing at a discount to the issue price. Many of the non-life insurance companies and PSUs that came out with IPOs in the recent past had priced the issue at the upper end of their valuation band.
What is the grey market premium in an IPO listing?
The grey market premium indicates how the IPO might react on a listing day. If the company comes up with an IPO or Rs.100 and the grey market premium is around Rs.20 then we can assume the IPO to list around 120 rupees on listing day. There is no reliability but in most of the cases the GMP works properly and IPO list around the given price.
What will be the listing gain against the IPO price?
Based on the calculation the listing gain will be 50\% against the IPO price. The listing of an IPO might vary against the estimated listing price suggested by the grey market due to the bear market or the demand of the company.
What is meant by issue of shares at premium?
Such type of share issue is known as issue of shares at premium. The difference between the face value/par value or nominal value of shares and the price of shares issued at premium is the premium amount.
Kostak Rate is the premium one gets by selling his/her IPO application (in an off-market transaction) to someone else even before allotment or listing of the issue. Do not subscribe for IPO by just seeing premium Price as it may change anytime before listing. Subscribe only considering Fundamental of the companies.