GMP Explained: Grey Market Premium, Kostak Rate and Subject to Sauda
Every IPO season, three numbers start flying around WhatsApp groups and dealer chats: GMP, Kostak rate and Subject to Sauda. They all describe the same thing, the price of an IPO before it lists, but they are three different kinds of deals, with different risks. This page explains each one in plain words, with worked examples, so you can read any grey market quote and know exactly what it means.
There is no single default for grey market IPO selling. A per-share GMP deal is inherently conditional on allotment, a Kostak deal is explicitly unconditional (the seller keeps the money even with no allotment), and a Subject to Sauda deal is explicitly conditional (no allotment, no payment). Always confirm which of the three you are being quoted.
What is IPO GMP?
GMP stands for Grey Market Premium. It is the extra amount, per share, that buyers in the unofficial grey market are willing to pay over the IPO issue price, before the shares list on the stock exchange. It is a sentiment reading: a high GMP means dealers expect a strong listing, a low or negative GMP means they expect a weak one.
GMP is quoted per share, and it can be negative. A negative GMP means the grey market expects the stock to list below its issue price.
An IPO is priced at Rs 200 per share and its GMP is Rs 80.
Implied listing price = Rs 200 + Rs 80 = Rs 280 (a 40% gain on the issue price)
So a GMP of Rs 80 does not mean Rs 80 profit in total. It means Rs 80 profit per share, if the listing actually happens near that level. For one lot of 75 shares, that would be 75 x Rs 80 = Rs 6,000.
What GMP does and does not predict
What it does: GMP captures real-time demand sentiment. It moves with subscription numbers, market mood and news about the company, and it often points in the right direction for genuinely hot or genuinely weak issues.
What it does not: GMP is not a forecast, not a guarantee and not published by any stock exchange. It comes from a small, informal dealer network, so a handful of trades can move it, and it can collapse in days. Treat it as one input alongside subscription data and the company's fundamentals, never as the decision itself.
LIC, India's largest IPO at the time, traded at a grey market premium of over Rs 100 per share in the early part of its IPO cycle. In the final days before its May 17, 2022 listing, that premium collapsed to just Rs 8 to Rs 10, then slipped to a discount. LIC listed below its issue price of Rs 949.
Anyone who had read the early Rs 100-plus GMP as a promised listing gain was badly misled. GMP measures mood, and mood changes fast.
What is Kostak rate?
Kostak rate is the price of an entire IPO application, not of a single share. Before allotment is announced, an applicant can sell their whole application to a buyer in the grey market for a fixed Kostak amount. The deal is simple and absolute: the seller keeps the Kostak money whether or not the application gets any allotment. The buyer takes on the full allotment risk, and keeps any listing gain above the Kostak amount.
Think of it like selling a lottery ticket before the draw. You give up the chance of a big win, but you lock in a small, certain sum, and you stop worrying about the draw altogether.
You apply for one lot of an IPO: issue price Rs 500, lot size 15 shares, so your application is worth Rs 7,500. A dealer offers a Kostak rate of Rs 1,000.
You sell the application and keep Rs 1,000, allotment or no allotment.
If you get allotted and the shares list well, the buyer keeps the listing gain minus the Rs 1,000 already paid to you. If you get no allotment, the buyer loses, and you still keep the Rs 1,000.
An IPO is priced at Rs 225, one lot is 65 shares, and you sell your application at a Kostak rate of Rs 700. The shares list at Rs 300.
Total listing gain = (Rs 300 - Rs 225) x 65 shares = Rs 75 x 65 = Rs 4,875
The seller's share is fixed at Rs 700. The buyer keeps the remaining Rs 4,175. The seller traded a possible Rs 4,875 for a certain Rs 700, and the buyer took the allotment risk in exchange for the upside.
What is Subject to Sauda?
Subject to Sauda, often written as Subject to Allotment or StS, is a conditional grey market deal. The seller agrees to sell their shares at an agreed premium, but the deal only becomes live if the application actually gets allotted shares. No allotment means no deal and no payment.
Because the buyer only pays when shares are secured, Subject to Sauda rates are usually higher than Kostak rates for the same IPO. The seller keeps more upside, but keeps the allotment risk too.
How a Subject to Sauda deal plays out, step by step
- During subscription: the seller and buyer agree on a premium per share, for example Rs 60 above the issue price, subject to allotment.
- Allotment day, branch A, shares allotted: the deal becomes live. The buyer pays the agreed premium (and the application money arrangement is settled between them), and the seller passes on the listing benefit as agreed.
- Allotment day, branch B, no shares allotted: the deal is cancelled automatically. Nothing is paid by either side, and both walk away.
- Listing day: if the deal went live, the two sides settle the final amounts based on the agreed terms, usually soon after listing.
Is grey market selling subject to allotment, or not? The key answer
This is the question that causes the most confusion, because the answer depends on which deal you mean. There is no single default across the grey market. Each quote type carries its own condition, and that condition is the whole point of the quote.
| Deal type | What is traded | Paid if no allotment? | Who carries allotment risk? |
|---|---|---|---|
| GMP deal (per share) | The right to allotted shares, at issue price plus GMP per share | No, there are no shares to trade without allotment, so the deal cannot complete | Shared: the deal only exists if allotment happens |
| Kostak deal | The entire application, at a fixed price per application | Yes, the seller keeps the Kostak amount either way | The buyer, fully |
| Subject to Sauda | Shares at an agreed premium, conditional on allotment | No, the deal is cancelled | The seller, until allotment is confirmed |
In short: per-share GMP deals are inherently conditional on allotment, Kostak deals are explicitly unconditional, and Subject to Sauda deals are explicitly conditional. If someone quotes you a number without saying which of the three it is, ask. The number alone does not tell you the terms.
Where to find Kostak brokers
There is no official directory of Kostak dealers, because the grey market has no official standing. Rates circulate through informal channels:
- Local dealer networks: in major trading cities, grey market dealing runs through established local dealers and sub-brokers, usually reached by introduction through someone already active in IPOs.
- Phone and WhatsApp: many dealers quote daily GMP, Kostak and Subject to Sauda rates over phone calls and WhatsApp groups dedicated to IPO dealing.
- Telegram groups: IPO-focused Telegram groups and channels publish dealer-sourced rates through the subscription window, though the numbers vary between groups.
- IPO tracking websites: sites like Bhaav publish GMP figures reconciled from multiple online and offline dealer sources, which is a useful cross-check against any single dealer's quote.
Rates from different dealers for the same IPO often differ. That spread itself is a warning: these are informal quotes from a thin market, not exchange prices, and no single quote should be treated as the market price.
How it all works: the IPO timeline
Grey market deals live in the gap between subscription and listing. The standard listing schedule runs on working days from the IPO close, known as T:
Kostak deals are struck while the IPO is open and before allotment is known, which is exactly why the buyer demands a discount for taking the allotment risk. Subject to Sauda deals are agreed in the same window, but only activate at the allotment step. Per-share GMP trading continues right up to listing, and its price moves every day in between.
Risks and legality
- Not regulated or recognised by SEBI: the grey market operates outside the stock exchanges and outside SEBI's framework, and SEBI discourages participation in it. Grey market trades have no legal protection.
- Counterparty default: every deal rests on trust and a verbal agreement. If the other side refuses to pay after listing, there is no exchange, no contract and no practical legal recourse.
- Fake or manipulated GMP: because the market is thin and informal, a few trades, or even just talk, can push a quoted premium up or down. A high GMP can be manufactured to create hype around a weak issue.
- Volatility: premiums can collapse in days, as the LIC example shows, and a quote taken on subscription day may look nothing like the quote on listing morning.
- No transparency: there is no order book, no official price feed and no way to verify that a quoted rate reflects real trades.
Read this before acting on any grey market number: a GMP, Kostak or Subject to Sauda quote is an informal sentiment signal from an unregulated market. It is not a price, not a promise and not a recommendation. Verify subscription data and the company's fundamentals before applying for any IPO.
Quick answers
Is selling an IPO in the grey market subject to allotment?
It depends on the deal. Kostak sales are not subject to allotment: the seller keeps the money either way. Subject to Sauda sales are subject to allotment: no allotment, no deal. Per-share GMP deals can only complete if allotment happens, because without allotted shares there is nothing to sell.
Is Kostak rate per share or per application?
Per application, meaning per lot applied for. That is the key difference from GMP, which is quoted per share.
Why is Subject to Sauda usually higher than Kostak for the same IPO?
Because the buyer only pays when allotment is confirmed, the seller carries less risk than in a Kostak deal, so the seller can demand a higher premium.
Can GMP be negative?
Yes. A negative GMP means the grey market expects the stock to list below its issue price.
Back to the live numbers: see today's IPO GMP on Bhaav, or use the Apply Calculator to work out lot-wise gain for any IPO.