Ultimate Guide To Grey Market Premium

Grey Market

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Grey market premium is a methodology to compare Initial public offering (IPO), in the grey market. GMP states, how much further, IPO will go on the listing day, with a predicted price. In simple words, grey market premium is calculated on how efficiently company is performing and its demand on the grey market.

Suppose if x IPO is fixed at ₹110 and the rate in the grey market is ₹150, so the IPO listing could reach ₹260. However, this is just a estimation, the IPO listing could differ up to some extent from the grey market price. This concept is vital for a business man, seller and a buyer.

There are two approaches, using which one deals in the grey market:

  • The first approach is to acquire some shares and vend them on increased rates. There will be two possibilities; either the seller would gain a profit or loss. Besides, this depends on the public investors, after the release of IPO listing.

  • The second approach is to vend the whole IPO, at an increased rate. However, here the buyer will offer a particular amount, if the seller will be able to obtain the estimated IPO share in accordance with the buyer. Furthermore, the seller will be responsible for the tax on the IPO.

What does the term “grey market” is in grey market premium?

Grey market is an unofficial market. In this market, the import and sale are performed by uncertified dealers. However, this practice is not illegal and is unregulated by market authorities. This market opens a door for underwriters and issuer, who determine the estimated amount for a new offering.

The fact that grey market is unpredictable make is arduous to think of the exactness for grey market sales. The goods available in the grey market could be fresh as new or second hand. Moreover, the term for a market comprising of used goods is green market.

The grey market is known with another name, which is parallel market. Besides, it is called as parallel market because the goods are vended in the distribution channel, which is not official. Even though the market isn’t illegal, but the quality of goods could vary and can alter product’s original reputation. The products available in the grey market include watches, cameras, cars and pharmaceuticals.

Advantages of grey market are mentioned below:

  • Lower price: The price of goods will be cheap in comparison with the original price. So, it is affordable for general audience.

  • Availability of products: Well, there are times, when one is not able to acquire desired products including perfumes, Mumm’s champagne, branded products like Louis Vuitton etc. In such case, one can opt to ask for its availability in the grey market.

  • Good quality: The fact that the products are sold through unauthorized person raise a doubt over quality. Besides, the products are often of good quality.

Is Grey Market Premium Considered Safe?

The methodology of grey market premium is dependent on the market along with the traders and public investors. Moreover, there is no guarantee of it being considered as a safe practice. One needs to be familiar with the concept well, and should be participating at its own risk. Keep your eyes open and trade in the primary market after the completion of listing process.

What does Kostak indicates?

Kostak is the price, which is provided to the seller, when he vends the goods. This is performed way before the listing process. The rates of Kostak differ for each application. Kostak is also called as an off-market transaction. People on the other hand, has a privilege to sell their IPO application on Kostak rates outside of market with a fixed profit. If a person decides to list five goods for one IPO and plans to sell it for thousand bucks, then he can earn about ₹5,000.  However, after securing ₹10,000, he will need to provide ₹5,000 to the person who has acquired the goods in first place.

Subject to Sauda in grey premium market

Subject to Sauda is amount assigned to the investor, once the allotment is confirmed. The tricky part about this term is one can only receive the assigned amount after the allotment. There will be no money without the confirm allotment. You will not able to fix related profit, as it relies on the allotment alone. However, selling the application for a specific price, after the allotment can provide a good amount of profit.

Does Grey Market exist in India?

Grey market is present in India from a very long span of time. Besides, traders and investors are right people to verify its authenticity. This market is based on a game, which is demand and supply. One can the quit the game any time. The IPO is available after the deadline as well. Companies can trade the stock before completion of listing process. Zomato and Paytm are among such companies, who has traded at the price which is 15 to 20 times higher than the predicted IPO.

What is IPO? Is there a difference between FPO and IPO?

IPO stands for initial public offer, whereas FPO stands for Follow on public offer.  IPO is the main source of company to buy money from the general public to finalize the project. The company does provide shares to the investors. IPO is for unlisted company with high risk and profit.

FPO commence after the completion of IPO. It is for a listed company and capital is raised through public contribution. Even though the risks in FPO are low in comparison with IPO, but the profit is less.

Grey Market Premium: Risky But Could Be Beneficial

Grey market premium is risky, but if the bidding goes in the favor, it is beneficial. Besides, as we all invest in mutual funds and it is as risky as grey market premium.  No one knows, when will market go down. Moreover, whilst think of opening a business, there is a possibility of it being a hit or a flop.

In simple words, as everything has pros and cons. We need to trust our instincts and take action. However, it doesn’t mean, you can blindly put your faith into something. Be aware of benefits and consequences and then think about the next step. I hope this blog will answer all your queries regarding grey market and grey market premium.

Read more: Top Upcoming IPOs In India

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