馃攳
IPO GMP (Grey Market Premium), Kostak Rate & Subject To Sauda (SS) - Explained By AssetYogi - YouTube
Channel: Asset Yogi
[1]
Whenever we do IPO analysis, many of you comment
[5]
that we should discuss its grey market premium
[8]
Many people have requested what is a grey market premium
[12]
Explain this in detail.
[14]
So that's what we are going to do in this video.
[16]
We will understand what is grey market premium
[18]
Many people also doubt that in grey market premium,
[21]
this grey word is not an indication of illegal.
So we will discuss that too.
[27]
And also I will tell you why we don't talk about grey market premium in any video
[33]
There are two terms associated with grey market premium.
[36]
One is the Kostak rate and the other is SS.
[39]
The full form of SS is subject to Sauda (deal)
[41]
We will also know about them,
[42]
And we will also talk about what are the risk factors associated with the grey market?
[46]
If we come to know about the grey market of an IPO, then how can we use it?
[52]
We are going to talk about all these in detail.
stay in the video
[55]
Subscribe to this channel to watch the latest finance videos.
[58]
Also, by pressing the bell icon, click on All
[61]
So that you will get the notification for the latest video
[63]
Friends, if you want to know in detail about the stock market and mutual funds
[67]
So you can follow our playlist, master investment series, mutual fund series
[71]
We have many more playlists
You will find the links in the description below
[76]
To understand grey market premium, let us first look at the first part of it
[80]
What is this grey market after all?
[82]
On one side there is a white market which means that it is a legal market in every way.
[86]
For example, if we buy or sell shares from the stock exchange.
[89]
it is legal and allowed so we will call it a white market.
[92]
On the other hand, there is the black market which is illegal and not allowed according to law.
[96]
As we saw in COVID circumstances medicines and injections
[102]
are being sold at ten times the rate illegally in the black market
[105]
So that was a black market
[106]
So now in the middle of it, some areas are grey areas.
[109]
These are not illegal, but maybe there is no regulation for them.
[114]
So one such example is the grey market of IPO
[117]
In which shares are traded but SEBI regulations do not apply on it.
[122]
And why doesn't it happen?
[123]
SEBI regulations apply when an IPO gets listed.
[127]
That is, those regulations apply to listed companies.
[129]
That means until the IPO is not listed, no regulation will apply to it.
[133]
That means it is an unregulated market
That is why we called it grey market
[137]
When is the IPO grey market regulated?
[140]
Whenever an issue comes, that is, an IPO comes.
[143]
So first its issue price is declared
[145]
And there is a period of 10 to 12 days till it gets listed
[148]
The trading gets started during this time
[151]
This means IPO applications are also bought or sold
[154]
Or if the shares are allotted to someone then the shares
[157]
are bought from him within the advance
[159]
And how does this work we will understand this graphically
[162]
But the question that arises here is that
[164]
Why do people trade in the grey market?
[166]
See if there is an IPO, there is a very famous IPO
[171]
Let's take an example, assume there is an IPO of Zomato
[173]
People are thinking that this is very popular maybe it will get listed
[177]
We will earn a premium of approx 50 to 60 % easily here
[180]
Many people will say that assume there is a share of 1000 Rs
[184]
Why not give 30% means 300 Rs extra and block the shares
[189]
And if this gets listed at 60%
[191]
So my remaining amount, then I will earn the extra 30%
[195]
Due to this, many people deal in the grey market.
[198]
But this is an unofficial market
[200]
And all the trading are done orally, the contracts are not written generally
[204]
These types of markets are generated in some cities
[207]
There is a dealer in this and his main work is to connect the buyer and seller
[212]
And with that, he makes sure that the buyer and seller honor their transaction
[216]
So we understood how the grey market of IPO works
[219]
Now we will understand how the grey market premium works?
[222]
Let's take an example
[224]
Assume there is an IPO and the issue price is 1000 Rs
[228]
And the minimum lot is of 15 shares
[231]
So our minimum investment will be 15000 Rs
[234]
Assume there is a person who is ready to sell in this IPO
[240]
And one buyer comes and approaches him that I am ready
[243]
to pay premium of the 300 Rs per share
[246]
Because this buyer thinks that there will be a huge amount of premium in this
[251]
Maybe he thinks that it will get listed at 1600 Rs
[254]
So I will earn 300 Rs, then I will give 300 Rs to him today
[256]
And this buyer generally deal in bulk
[260]
It's not like that he is only buying from this seller
[263]
He may be buying many shares from different people in IPO
[266]
Because he thinks that if this much returns can be earned in 10 days
[269]
Then we can take a risk
[271]
So in this case the risk is transferred from the seller to the buyer
[276]
In this case, what is the loss to the seller?
[278]
He is getting a fixed profit of 300 Rs per share
[280]
And if we multiply this by 15, then he will get a fixed profit of 4500 Rs
[285]
After that, the seller has to transfer 15 shares to the buyer whenever he says
[292]
Or he has to sell and whatever the net profit or loss will be transferred towards the buyer
[299]
And the dealer is involved between these deals
[302]
Because the sellers don't know the buyers
[304]
And the buyers don't know the sellers
[306]
The mediator is needed to honor the transactions
[310]
So the dealer executes the deal
[312]
In every case, the seller will get the fixed profitof 300脳15
[317]
This means he is getting 4500 Rs. For him, the deal is not that bad
[321]
For example, the seller thinks that the price should be more
[325]
He may say that if you give me 500 Rs per share then I am ready to give you the shares
[330]
So the demand and supply comes here
[332]
So 500 Rs will be his grey market premium
[336]
In this case, the premium that the buyer is paying to the seller before getting listed
[341]
is called grey market premium
[344]
So see, how will the buyer face profit or loss in this?
[346]
We will understand that also
[348]
Assume case 1, the listing price is listed at 1700 Rs
[352]
So the issue price was 1000 Rs
[355]
Minus 300 Rs, he had given grey market premium to this seller
[360]
And if we deduct 1000 and 300 Rs from this 1700 Rs
[364]
Then the profit per share will be 400 Rs
[366]
So the total profit will be 400脳15, the profit is 6000 Rs
[371]
In this way, he booked this deal with multiple people
[375]
Then he may get very much profit within 10 days
[377]
Similarly if we see this case 2,
[379]
Assume the listing price is only 1100 Rs
[382]
See it is more than 1000 Rs its not like this IPO is causing loss
[387]
If this seller had sold in the market, then he might get a profit of 100 Rs per share
[392]
But here, he earned profit of 300脳15= 4500 Rs
[396]
If he would have earned profit that way then
[398]
he would get only 100 Rs per share
[400]
On the other hand, if we talk about the buyer
[402]
then he faced loss in this case
[403]
The issue price was 1000 Rs,
[405]
he paid a grey market premium of 300 Rs
[408]
So if we deduct 1000 and 300 from this 1100
[411]
Then he is facing loss
[413]
He is facing a loss of 200 per share
[415]
The total is worth 3000 Rs
[418]
This means 200 脳 15 shares
[419]
So in this way, it is a game of double edged sword.
[422]
As we said, the risk is transferring from seller to buyer
[427]
This Buyer is ready to take a risk.
[429]
Therefore, if it benefits, it can be of great benefit
[432]
and if there is a loss, it can cause a lot of loss.
So it's a matter of grey market premium
[436]
There are two or three more terms in this, which are quite similar
[440]
The first one is kostak rate
[441]
Let us take the same example in this case as well.
[443]
In this case, buyer says that I am ready to buy your application
[447]
Allotment not done yet, nothing is done, he is saying whether the allotment is done or not
[453]
You take 500 rupees from me.
[455]
You will get this 500 rupees
[457]
So this buyer can book a lot of applications like this
[461]
So here he is playing on probability
[462]
If I have booked 20 applications, then may be 5 will select it
[467]
If his 5 applications are selected, then he can also benefit.
[471]
Provided, it should be beneficial
[473]
and its listing should be done at a good price.
[475]
If the IPO is allotted to the seller.
[478]
Then he will transfer 15 shares in the Demat account of buyers whenever he says
[484]
Or the net profit or loss he will transfer to the buyer.
[487]
And this dealer will make sure that the seller will pass on the profit to the buyer.
[492]
And if there is a loss,
[494]
then the dealer himself will make sure that the buyer bears the loss.
[497]
The buyer will have to transfer the extra money to the seller.
[500]
If the listing drops below a thousand.
Kostak rates are quoted per lot
[506]
We had seen the GMP was quoted per share
But here a lot is quoted per lot
[510]
That means this guy is ready to pay Rs 500 on 15 shares for the application
[516]
there is another version of this
[518]
That is subject to Sauda (deal)
[519]
As we saw in the case of the Kostak rate,
Even if the application is selected or not
[523]
He gets Rs 500, but in the case
The buyer wants to be sure
[527]
If you get an allotment then I will give RS 1500 for your application
[532]
Means for 15 shares,
[534]
So here the seller will definitely get RS 1500
[538]
So here too the risk is transferring from seller to buyer.
[542]
So if the IPO is alloted, then the seller will transfer shares in the Demat account
[546]
of the buyer whenever he asks to pay or the net profit/loss will be transferred to the buyer.
[552]
And here too SS rates are quoted per lot.
[556]
Kostak rates and SS rates are quoted per lot
[559]
On GMP lot are quoted per share
[561]
So we understand concepts of grey market
[563]
Now let us also understand its risk factors.
[565]
Which is very important to know.
[567]
The first and the biggest risk factor is this market is an unregulated market
[571]
That is, there is no written agreement here.
[574]
There is an only oral agreement.
[575]
So if the buyer and seller refuse to honor transactions
[579]
So no one can do anything to each other.
[581]
Neither you can go to SEBI nor to the court.
[584]
Second, the price of the grey market has no reliability.
[589]
That means, whatever price the dealer will quote you, you will have to accept it.
[592]
Here Live trading is not happening
[594]
So this information is not reliable.
[597]
If we can't make the dealer's information reliable
[599]
So if the same information comes on the website
[602]
So how can we rely on that. And this is quite big reason
[605]
Due to which we don't talk about grey market premium
[608]
Because we don't know how much we can rely on the price given on any website
[613]
So now the question arises here is that the the grey market premium has any relevance or not?
[617]
It does have a relevance. I will tell you how. See, the market is going on sentiment
[622]
Assume the information is coming on any website
[626]
Or it is coming on the WhatsApp groups, people say that the grey market premium
[630]
Is going on for 300 Rs. So this information is going on the websites and social media
[634]
So everyone believes that it has at least 300 Rs premium
[638]
So that information is right or wrong
[640]
But it becomes a driving factor. That's why many people track grey market premium white closely
[647]
So if the grey market premium of any stock is going good whether they are seeing it on public website
[652]
So many people assume that it has chances of getting listing gains
[657]
So the grey market premium doesn't have anything to do with
[661]
the fundamental. It can work as an indicator for the listing gains
[665]
This means if you got the profit of 30 %
[667]
Then it is not necessary that it will grow 25 to 30% every year
[672]
We can consider grey market premium as an indicator of market sentiment
[678]
Till the IPO gets listed
[679]
It has no value more than that
Grey market premium cannot predict the fundamental growth of the stock
[685]
So that's all in this video
[686]
If you liked this video then like and share this video
[689]
with your friends and family members
[691]
Maybe they also have confusion about the grey market premium
[694]
Kostak and Sauda
[696]
If you have any suggestions related to this video or channel
[699]
Then you can comment below
[700]
If you haven't subscribed to the channel yet then subscribe and
[703]
Press the bell icon
[705]
So that you will get the notification of the latest finance video
[708]
So let's meet in the next informative video
[710]
Till then keep learning, keep earning
[712]
And be happy as always
Most Recent Videos:
You can go back to the homepage right here: Homepage