How does grey market premium works?

The grey market premium is a function of the demand and supply of IPO shares and market sentiment.

If investors are optimistic about the IPO, the grey market premium is on an upward trend. However, if investors are not completely sure of the company's prospectus and have doubts, the GMP is generally low or negative.

Trading of IPO shares with GMP begins in the IPO grey market as soon as the issue price is announced. The last GMP is updated one day before the listing date. There is sufficient time between the announcement of the issue price and the listing date to track the GMP, which can help predict the listing price and support investment decisions.

One should not blindly rely on GMP trends but can use them as an indicator in conjunction with other factors such as company prospects, objects, demand, etc.

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