Is IPO GMP Always Accurate? The Truth Revealed

No, IPO GMP (Grey Market Premium) is not always accurate. While it reflects market sentiment, it’s an unofficial, speculative indicator with significant limitations.

1. Key Reasons for Inaccuracy

• Unofficial Market: GMP trades happen in unregulated grey markets, prone to manipulation.
• Low Liquidity: Trades involve tiny volumes (often <0.1% of IPO size), exaggerating price swings.
• Last-Minute Shifts: GMP can crash/surge due to news, anchor investor actions, or global trends.
• Overhyped Demand: Retail FOMO may inflate GMP artificially (e.g., Paytm IPO 2021: GMP ₹175 → Listed at -9%).

2. Real-World Accuracy (2023 Data)

Only 62% of IPOs listed within ±10% of their final GMP prediction.

38% had significant gaps:

• Tata Tech: GMP ₹420 → Listed +140% (underestimated)
• LIC: GMP ₹90 → Listed -8% (overestimated)

3. When GMP is Most Reliable

• ✔ High QIB Subscription (e.g., >50x institutional bids validate GMP)
• ✔ Consistent Rise (GMP growing steadily during subscription)
• ✔ Backed by Fundamentals (GMP aligns with reasonable P/E ratios)

4. Red Flags of Unreliable GMP

• ❌ GMP-Subscription Mismatch: High GMP but low retail/HNI bids.
• ❌ Thin Volume: Few trades inflating premiums.
• ❌ Media Hype: GMP spikes coinciding with paid news.

5. Smart Investor Approach

• Triangulate Data: Compare GMP with institutional subscription levels, Kostak rates, and sector trends
• Assume 20-30% Discount: Listing gains often trail GMP
• Beware of Manipulation: Dealers may inflate GMP to lure retail investors

6. Pro Tip

GMP is a sentiment gauge, not a guarantee. For 2024, SEBI data shows only 58% correlation between GMP and 1-month post-listing returns.

Final Verdict

While IPO GMP offers insights, it’s wrong 40% of the time. Combine it with fundamentals, institutional interest, and market conditions for better decisions.

Example: If GMP is ₹100 but QIBs are undersubscribed, trust the institutions—not the grey market.