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GMP in IPO stands for grey market premium.
The premium that an investor pays in the grey market over the IPO issue price is known as the IPO GMP or grey market premium. It is the difference between the IPO trading price in Grey Market and IPO Issue Price. Depending on how well an IPO is received by investors, the GMP of the IPO can be positive, negative or even zero.
A company has priced its IPO at Rs 60 per share and in the grey market the shares are trading at Rs 80 i.e. a premium of Rs 20, so the GMP of the IPO is Rs 20 each share. The GMP provides a reasonable estimate for the listing of the IPO and in this case, investors can expect the IPO to be listed for Rs 80.
An IPO that is not well received by investors may also have a negative GMP. In the same case, a GMP of -10 means that the shares are trading at a discount in the grey market and the IPO may be listed at a loss.
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