IPO GMP Fact: If you invest in the stock market, then you must have heard about GMP. Especially when an investor invests money in an IPO, he takes special care of GMP. But, have you ever tried to know on what basis GMP is decided for the IPO of a stock. How is it told before listing, just by looking at the GMP of a stock, how much rupees it will open up or down. Come, today in this news, let us answer all the questions related to the GMP of IPO.

What is this grey market and GMP?

Actually, the grey market is an informal market, which is neither completely legal nor illegal. In this, trading of shares of an IPO takes place before its listing. This market does not have any formal address, rather it is based on trust and contacts. Grey market premium (GMP) means how much premium is being paid over the issue price of an IPO share.

Understand it in simple language like this- if the issue price of a company is Rs 200 and the GMP is running at Rs 50, then it means that in the grey market people are ready to pay Rs 250 for this share.

How is GMP decided?

GMP is determined based on demand and supply for any IPO. It does not involve any official trading platform as it takes place in the informal market. GMP rises when the demand for the stock is high and falls when the demand is low. Suppose, the issue price is Rs 200 and GMP is Rs 60, then it is estimated that the stock may list at Rs 260 at the time of listing.

Is GMP a right indicator for investment?

GMP can be considered an indicator, but it is not completely reliable. It is just an estimate based on market sentiment and demand. Sometimes GMP proves to be correct, and sometimes it goes completely wrong. Zomato IPO (2021), Paytm IPO (2021) and LIC IPO (2022) are big examples of this. It
 
is not right to completely rely on GMP 

GMP is just a grey market estimate and not a reflection of the company's actual performance or fundamentals. Due to the rapidly changing conditions of the stock market, GMP may prove to be wrong at times. For example, GMP may rise due to initial demand but the price may fall at the time of listing. Therefore, it is not right to invest solely by relying on it.