GMP is the guideline for positive or negative perception of a share in IPO issues. Investors are willing to pay more than IPO if GMP is positive in GMP IPO. If GMP is negative, it indicates that investors are not interested in the IPO, it is undervalued. GMP is one of many ideas that IPO investors can consider.
Let’s know what important role GMP plays in the IPO issue.
What is Grey Market Premium In GMP IPO
Grey Market Premium (GMP) is the gray market price that is higher or lower than the IPO price.
The GMP value of a share is unknown. In the gray market, the price that investors are willing to pay for a share is higher or lower than the IPO price, this price is called GMP.
that is,
Positive: If IPO price is 100$ and gray market investors are willing to pay 120$, then GMP=(120$-100$)=20$
Or negative: If the IPO price is 100$ and gray market investors are not willing to pay more than 80$, then GMP=(80$-100$)=-20$
GMP IPO has the following characteristics :
- Index indicator: GMP determines whether a share is positive or negative. Basically GMP determines the future of a share.
- Unregulated market: There is no fixed standard for GMP pricing. It is a price determined between traders and investors.
- Speculative Type: GMP is a speculative and volatile type of pricing. It is determined based on various news on market conditions, investor sentiment, IPO price.
- Not reliable: A high value of a share determined on GMP basis though indicates positivity is not reliable that the stock fulfills post-listing properly.
The standard that GMP sets on IPO pricing plays an important role in guiding investor sentiment. Although some cases appear to be unexpected indicators. After all, it has been accepted as one of the many reasons for investor interest.
What are 7 Benefits Of GMP IPO
GMP of IPO plays an important role in attracting investor interest in a stock before post-listing. An IPO’s high value GMP investors get priority in investing. Let us know what the benefits of GMP IPO can be:
- Primary Indicators of Demand:
- GMP as Sentiment Judge: A high quality GMP reflects the positive side of investor sentiment. What investors in the gray market are willing to pay is based on the IPO price.
- In terms of market perception: GMP allows us to understand how the market will view the interest in an IPO price.
- Chances of Gaining Listing:
- Quick Profits: For short-term investors or those who have participated in IPOs at the listing price, a high quality GMP offers a potential opportunity to make profits on the listing day.
- Premium Pricing: If the GMP rises significantly above the issue price, the number of premium shares will be listed. Provides immediate returns to those who are tied to the IPO price.
- Reduces risk: GMP values significantly, reducing the risk of loss for investors investing in an IPO.
- To make informed decisions: Investors should not, however, rely solely on GMP for investment. Along with this one should make cautious investments by knowing some information about company fundamentals, market conditions, and IPO.
- Industry sentiment: GMP sometimes reflects the broader market conditions of an industry or business organization. For example: If an industry or business establishment has more than one significant quality GMP listing, it indicates positivity for investment.
- Pricing: GMP helps determine the expected price range post listing. Provides insight into what the price range will look like in transactions after the stock is listed.
- Select Participation: Investors can voluntarily participate in the Gray Market to determine the IPO issue price and high quality GMP pricing. This is done for market positivity.
GMP helps investors make informed decisions to increase the likelihood of making an investment, which also plays a role in other areas. Eg: A significant GMP price of an IPO issue price increases investor interest in other IPOs in the same industry.
How To Calculate GMP Of IPO
Gray Market Premium (GMP) is not something that is calculated based on a formula. Rather, the GMP is calculated as the result of the difference between the Gray Market price and the IPO.
GMP Loading and Trucking Steps:
- Gray Market Monitoring: GMP reflects the difference between the IPO price and what gray market investors are willing to pay. In the Gray Market, investors and traders agree on a fixed price to buy an IPO share.
- Reliable sources: GMPs are usually published by stock market analysts and economic websites. For example: Websites like Chittorgarh, Moneycontrol regularly publish GMP prices.
- Formula for calculating GMP: If the IPO price of a share is ₹100 and the gray market price is ₹120 then its GMP price is ₹20. There is no other source, just the difference between the IPO price and the Gray Market price.
- Role of Market Sentiment: GMP price depends a lot on company news, investor interest, overall market conditions.
- A high GMP value indicates that the stock will perform well after the stock is listed.
Example:
IPO price=₹100
GMP = ₹20
Then the price of that share is ₹120 in gray market.
That is, investors are willing to pay ₹120 (which is ₹20 more than the IPO price) in the gray market before the share is officially listed.
Caution: Gray Market is speculative and volatile.
The Gray Market is unregulated, which means there is no guarantee that the high-quality GMP list here will approve the profit of the post.
Summary:
GMP is not determined mathematically but is determined by observing market movements in an unregulated market. To track this, it is necessary to monitor the results of the gray market from a reliable source.
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