IPO Gray Market Price : GMP Subject to Sauda & Kostak Rates 2019

An overview of IPO Gray market : GMP

If we talk about the meaning of Gray market, in general terms, then it actually refers to the market which is unofficial or illegal. Basically, the products that are there in this market are not purchased by the authorized seller or by legal means. One must have come across these types of sellers in the market areas, who do not have any authenticity for the products that they are selling actually.

If we talk about the same terms in the stock market, then it refers to the selling and purchasing of the securities by illegal methods. By the term illegal, we mean that the securities are bought or sold are not issued officially on the stock market. If you are an investor already, then you must have come across the news that a particular company has sold its shares in the grey market. This means that the company has not listed its shares officially in the stock market before selling. Let us quickly have a look on few of the terms that are related to the grey market.

ipo gray market

What is IPO Gray market Meaning ?

When we are talking about the gray market, then we will have to talk about IPO gray market, as IPO acts as a platform for gray marketing, but there is a huge difference between the two terms. People, who are new in the IPO investments or do not know anything about it, they often get confused between, what are IPO and IPO gray marketing. Gray marketing is an official or illegal marketing of shares; however, the IPO marketing is the legal marketing of share and the steps that are taken in these marketing remains as per the guidelines of SEBI. To understand the difference between the two terms, you first need to understand what are the importance of IPO in shares and then the role of gray marketing in IPO.

Given below are the description of a few more terms related to IPO and gray marketing.

Gray market premium of All IPOs

As discussed earlier also, that gray marketing is an unofficial way of buying and selling shares of the particular company. Even if we know that the gray marketing is unofficial, we can actually invest in it for getting the fixed benefit that a particular share has to offer us. This market actually works, before the coming up of the IPO listing. The working of gray marketing is very interesting. This actually indicates or assumes as how the IPO listing is going to react. The whole working procedure of the IPO Gray market premium could be understood by this example. Suppose a company comes with an IPO of 100 rupees and the gray market premium is 20 rupees, then it is assumed that at the listing day, the IPO will list around 120 rupees. It is clear from this example, that there is no reliability and surety in this, but the things work out well, most of the times. This is probably the reason that people are using this market for various kinds of profit.

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Kostak rates

When we are discussing IPO and gray marketing, then Kostak rates become the major point to be discussed. Before the IPO listing, you need to do the IPO application and for that IPO application, you need to pay a certain amount of money, which is known as kostak rates. One thing that you need to keep in your mind is that the Kostak rates react in the way the market reacts. If you want to earn that fixed amount of profit, then you can actually set your kostak rates outside the market. There, you will be able to know about the way of investment and the exact idea of the Kostak rates that you need to pay for your application. They are very important. You need to pay kostak rates, in either condition. You get the allotment or not, you will have to pay the Kostak rates for your IPOs.

Subject to Sauda

Subject to Sauda is again certain amount of money. Now, this could be compared to Kostak rates, but both are different things. if we talk about the Kostak rates, then they are paid for getting your application for the IPO done, while subject to sauda is the amount that is decided to get the allotment. In very simple terms, if a certain amount has been decided as Subject to Sauda for an IPO application, then after getting the allotment, the particular person will get that amount of money. If this does not happen, then the sauda will be canceled.

Unlike the previous method, here you cannot fix your profit, as it totally depends upon the allotment that you get. If someone gets the allotment and if he or she sells the same application in 10000 and the profit turns out to be 150000, then he or she should give 5000 to the person who bought the application.

How does the gray market works?

As it is already clear from the points mentioned above, that gray market is something, in which the selling and purchasing of the shares are not legal. Therefore, the biddings and other related things in this type of marketing are carried out on the phone only. The factors that are considered before starting the bidding are institutional and retail appetite, oversubscription extent and on the reputations of the promoters that are involved in this. if we talk about the prices that the gray market has to offer us, then it totally depends on the supply and demands.

One thing that is very clear with all this is that the gray market does not issue shares and it is the work of the IPO, but then also the investors want to invest their money here. The main reason for this is that, even it has a lack of authentication, the duration of time from which it is active, has made it a trustworthy institution. The people who are really active in this market actually sit and talk about the bidding that is done post the IPO listing. All the transactions that are done here are based on mutual trust. Hence, you will have to face your own risks and challenges, if you want to invest here. If you ask any of the previous investors, then they would never say that this is a bad platform to invest.

SEBI and gray marketing

One of the most frequently asked questions about gray marketing is that, does it runs on the basis of the rules and regulations made by SEBI. Well, with all the discussions that we have done so far, it must be clear to all that gray marketing is an illegal unit. now, when the whole institution is illegal, how could it run on the rules that are made for legal institutions. Any step that is taken in the gray marketing is not approved as per the rules made by SEBI.

In a nutshell, we can say that both the IPO and gray market investment are related to each other. The only thing that is different is the illegality of the gray market. However, with all the wrong things embedded in it, the gray market has become the hub of investors.

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