Every IPO season, my phone starts buzzing with the same question: “GMP is 80, should I apply?” Working in primary markets, I get to watch this number get treated like a forecast. It is not a forecast. It is a rumour with a price tag.
Here is what it actually is, and where it is useful.
Before an IPO lists, its shares cannot be bought or sold on any exchange. The grey market is an informal, completely unregulated market where people trade IPO applications and allotted shares among themselves. No exchange, no settlement guarantee, no SEBI oversight. If your counterparty disappears, there is no one to complain to. It runs entirely on trust between traders who have known each other for years.
GMP is simply the premium these trades happen at, over the issue price. Issue price Rs 500, GMP Rs 100, means someone out there is willing to pay Rs 600 today for shares that list later. That is all it is.
Where it has some signal
I don’t want to dismiss GMP entirely, because that would be dishonest. For large mainboard IPOs from established companies, it has a decent directional track record. Strong and rising GMP in the days before listing, and the IPO more often than not lists at a premium. GMP collapsing or going negative, and the listing is usually weak.
This makes sense. The people quoting these prices are experienced traders watching subscription data, anchor books, and listed peers. They are not random. Their collective view, aggregated messily, contains some information.
The mistake is taking it literally. A GMP of Rs 150 is not a promise of Rs 150 on listing day. The direction has some value. The magnitude is close to noise.
Where it is just noise
Three situations where I ignore it completely.
SME IPOs. The SME grey market is thin, so a handful of traders can move the number at will. Worse, a high SME GMP is sometimes manufactured. Promoter-linked entities buy applications in the grey market to push the GMP up, retail investors see the excitement, subscription numbers climb, and the GMP climbs further. A signal eating its own tail. I have seen SME IPOs with very high GMP list flat or worse.
A market fall between subscription and listing. GMP forms over several days. If the broader market drops 3-5% in that window, the number you read is stale.
And the third: when GMP is the only reason you are applying. If the whole thesis is “GMP is high, let me grab listing gains,” you are treating a lottery as a business plan. Even when the GMP is right, your chance of getting shares in a heavily subscribed retail category is low, and the expected value shrinks accordingly. (I have written separately about how listing gains actually work out, and about how allotment works.)
How I use it
As one data point among several. I look at it next to QIB subscription, which is much harder to game, the pricing versus listed peers, and what the DRHP actually says about the business. Strong GMP plus strong QIB demand plus sensible pricing plus a decent business is a reasonable set of signals. High GMP alone, especially on an SME IPO with weak QIB interest, tells me almost nothing.
A company worth owning at a fair price does not need a high GMP to justify the application. And a company that needs a high GMP to attract you is usually telling you something.