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 pays special attention to GMP. But, have you ever tried to know on what basis the GMP is decided for the IPO of a share? Even before listing, how can one tell by just looking at the GMP of a share, how much higher or lower it will open? Come, today in this news we will answer all the questions related to GMP of IPO.
What is this gray market and GMP?
Actually, gray market is an informal market, which is neither completely legal nor illegal. In this, trading of shares of an IPO takes place even before the listing. This market has no formal address, rather it is based on trust and contacts. Gray Market Premium (GMP) means how much premium is being paid over the issue price of an IPO share.
Understand it in simple language – if the issue price of a company is Rs 200 and GMP is running at Rs 50, it means that people are ready to pay Rs 250 for this share in the gray market.
How is GMP decided?
GMP for any IPO is decided on the basis of demand and supply. There are no official trading platforms involved as it takes place in an informal market. GMP increases 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 share may list at Rs 260 at the time of listing.
Is GMP the right indicator for investing?
GMP can be considered an indicator, but it is not completely reliable. This is just an estimate based on market perception and demand. Sometimes GMP proves to be right, and sometimes it goes completely wrong. Zomato IPO (2021), Paytm IPO (2021) and LIC IPO (2022) are big examples of this.
Complete trust on GMP is not right
GMP is only a gray market estimate and not the company’s actual performance or fundamentals. Due to the rapidly changing conditions of the stock market, GMP may prove wrong at times. For example, GMP may increase due to initial demand but the price may fall at the time of listing. Therefore, it is not right to invest only by relying on it.
Disclaimer: (The information provided here is being given for information only. It is important to mention here that investment in the market is subject to market risks. Always seek expert advice before investing money as an investor. ABPLive.com does not advise anyone It is never advisable to invest money here.)
Also read: The President of India has invested maximum money in this sector, see the portfolio of the President of India here
