What Is GMP in IPO? Meaning, How It Works and Limitations

Figures like “GMP ₹40” are often quoted before an IPO lists. This article explains where such figures come from, how they are used and why they are unreliable.

The IPO grey market is an informal, off-exchange space where people agree to buy or sell IPO shares, or IPO applications, before the shares are listed. It sits outside NSE and BSE, so it has no exchange trading system, no clearing corporation and no settlement guarantee.

These dealings are not reported to any exchange or regulator. That is why no GMP figure can be independently checked.

A negative GMP means an informal quote below the issue price. You may also hear other informal terms linked to IPO applications; these are covered briefly in the FAQs. None of these arrangements is recognised by SEBI, NSE or BSE, and none can be enforced through the exchange system.

GMP is an informal quote that can change from the time an IPO is announced until the day its shares list. Under SEBI’s circular of 9 August 2023 (SEBI/HO/CFD/TPD1/CIR/P/2023/140), shares must list within three working days after the issue closes (T+3) for issues opening on or after 1 December 2023, so this window is short.

1. The IPO is announced. The price band and issue dates become public, and informal quotes may begin to circulate.
2. Quotes move with sentiment. News, market mood and subscription figures can push the quoted premium up or down.
3. The issue closes and allotment is finalised. Informal deals on applications depend on who receives shares.
4. The shares list. The actual price is discovered on NSE and BSE through regulated trading. From this point the informal quote has no relevance.

A worked example (hypothetical)

The figures below are made up only to show the arithmetic. They do not relate to any real IPO and are not a forecast or indication of any listing price.

The figure people often quote is worked out as:

Implied figure = Issue price + GMP

This figure only restates an unverified informal quote at one moment. The price discovered on the exchange on listing day can be higher or lower, including below the issue price.

GMP is talked about because it is widely quoted in the media and online before an IPO lists, and some people read it as a sign of how others feel about the issue. That is the full extent of what it can show.

• A mood indicator, at best. A rising quote may reflect short-term enthusiasm among some participants; a falling or negative one may reflect caution.
• A talking point. Because it circulates widely, it shapes conversation around an issue, whether or not it is accurate.
• Not a substitute for official information. Subscription data published by NSE and BSE, and the offer document, are the verifiable sources.

GMP says nothing about a company’s business or finances, and SEBI’s investor guidance cautions against relying on rumours or expecting the share price to rise in the short run.

GMP is unofficial, unverified and outside the regulated market, so it is not a reliable guide to listing prices and no guide at all to a company’s value. These are the main reasons for caution.

1. It is not official. No exchange, regulator, company or lead manager publishes GMP, and different sources often quote different figures.
2. It is off-exchange. Grey market dealings happen outside NSE and BSE. SEBI’s investor guidance asks investors to transact only through stock exchanges, deal only through SEBI-registered intermediaries and avoid off-market transactions.
3. There is no exchange protection. Without an exchange, there is no clearing, no settlement guarantee and no access to exchange grievance redressal or arbitration if the other party does not pay or deliver.
4. It is open to rumour and influence. Quotes are unrecorded and thinly traded, so they can be shaped by a few participants or by hype. SEBI’s investor guidance asks investors not to fall prey to market rumours.
5. It changes quickly. The quoted figure can move sharply in the days before listing.
6. It does not predict the listing price. The listing price is discovered on the exchange and can differ from any informal quote, including falling below the issue price.
7. It says nothing about fundamentals. GMP reflects short-term mood, not the company’s business, financials, risks or valuation.
8. It covers only the pre-listing period. It says nothing about how a share may perform after listing.

Please note: GMP is an unofficial figure from an unregulated space. It should not be the basis for applying for, buying or selling any IPO, and investors should not take part in off-exchange dealings in IPO shares or applications.

The offer document and official exchange data are the sources that matter. SEBI’s investor guidance for public issues asks investors to read the prospectus or abridged prospectus and note the points below.

Offer documents are available on the SEBI, NSE and BSE websites. Subscription figures during the issue are published by NSE and BSE.

Apply only through the official route: through a SEBI-registered intermediary or your bank, using ASBA or a UPI mandate as set out in the offer document. Never pay money for an IPO application to any individual. For a doubt about an issue, SEBI’s guidance is to contact the compliance officer named in the offer document; for advice suited to you, consult a SEBI-registered investment adviser.

• SEBI circular SEBI/HO/CFD/TPD1/CIR/P/2023/140 dated 9 August 2023: Reduction of timeline for listing of shares in Public Issue from existing T+6 days to T+3 days
• SEBI, Office of Investor Assistance and Education: Message for Investors – Do’s and Don’ts (Issue of Securities; Dealing in Securities)