The circuit of stock markets is the hub where investors are on the verge of continuously seeking opportunities for maximisation of gains and profits. That is why the Indian trading market has invented significant measurements on regulating GMP in Initial Public Offerings (IPOs).
Let’s look into the article where we will be decoding GMP in IPOs and understand the functioning of the GMP in IPOs and other share market sectors.
Evaluation of Grey Market Premium
The Grey market premium is the specific premium amount at which the IPO shares get traded before the shares are enlisted in the stock markets. The Grey market Premium determines when the share or stock would be sold outside the stock market in correspondence with the division of the IPOs.
The GMP or Grey Market Premium determines the IPO performances in the initial phases of the trading periods. The GMP works in two specific ways to make money, the first and foremost is to buy and sell the IPO shares in the market before the publication. The other one is the selling of the IPO applications at a certain affordable price.
Understanding GMP’s Function
The Grey Market operates strategically and intuitively. IPO shares and other workings in the GMPs have a significant impact on the understanding of the GMP processes. Let’s take the example of Mr Kumar, who had given an application for IPO in the retail sector of up to 7 lakhs. After that, he acknowledged that he would not receive any allocated shares therefore he decided to take calculated financial risks.
On the other end, Mr Bansal confidently understands the prospects of the IPOs in the Grey Market Premiums and wants to secure in the IPOs an assured allotment without going through the IPO stocks’ official processes. Then, Mr. Bansal makes certain contacts with the grey market dealers and then that dealer acts as an intermediate between Mr. Bansal and Mr. Kumar by connecting with Mr. Kumar and convincing him to buy the allocated shares from Mr. Bansal.
After the agreement with Mr Kumar, Mr Bansal decided to buy the shares as Mr Kumar has a fixed amount of Rs. 2000 per share. The whole process is carried out in tandem with the application guidelines of the IPOs.
This is the fundamental foundation of the GMP and how it functions on the basic outlines of the trade market. With that, we come across the concept of Kostak:
Evaluation of Kostak
The Kostak is also known as predetermined prices which investors pay for dealing with the grey market dealers in the share markets in response to the various outlined IPOs shares. This explains the selling of the IPO applications to investors without showing any impact on the sellers or buyers.
Kostak predetermines the listed stocks that are below the IPO details and how these IPOs can be sold to attain a greater profit with a high margin. This benefits the grey market dealers and keeps the investors or traders on the verge of potential financial risks.
Understanding Grey Market Dealers
The Grey Market Dealers are mainly engaged in secret transactions through online domains. The individual who wants to make connections with the market should thoroughly study and navigate the market and should make themselves trustworthy to understand the working processes of a dealer in the grey market. The grey Market dealers do not have any specific locations geographically and they have an in-depth understanding of the financial market and its strategies.
Final Thoughts
The grey Market Premium provides high-margin profits and high-profit generation for the investors. On the contrary, it provides certain risks regarding the distribution of IPO GMP shares in the trading market. Traders and investors should be cautious with the various trading policies so that they can prevent themselves from any financial loss or any kind of legal issues.
