When Does IPO GMP Increase or Decrease? Key Factors Explained
Introduction
IPO Grey Market Premium (GMP) is highly dynamic – it can surge or crash within hours. But what exactly makes GMP move up or down? Whether you’re an investor tracking pre-IPO trends or considering applying, understanding what drives GMP fluctuations is crucial. This guide breaks down all key factors with real examples.
When IPO GMP Increases
GMP rises when demand outstrips supply in the grey market. Key triggers:
1. Strong Subscription Numbers
- GMP spikes when QIB (Institutional) portion gets oversubscribed
- Example: Tata Tech IPO (2023) GMP jumped 300% after 73x QIB subscription
2. Positive Market Sentiment
- Bullish stock markets lift all IPO premiums
- Sector-specific booms (e.g., tech, renewables) help related IPOs
3. Attractive Pricing
- GMP rises when issue price is perceived as undervalued
- Example: IREDA IPO (2023) priced at ₹32 saw GMP reach ₹15 (47% premium)
4. Brand Value & Promoters
- Reputed promoters (Tata, Reliance etc.) command premium
- First-of-its-kind businesses generate hype
When IPO GMP Decreases
GMP falls when supply exceeds demand. Major reasons:
1. Poor Subscription Response
- GMP crashes if retail/HNI portions remain undersubscribed
- Example: Paytm IPO (2021) GMP turned negative after tepid retail interest
2. Adverse Market Conditions
- Market corrections or geopolitical tensions dampen GMP
- Sectoral downturns (e.g., IT stocks in 2022) hurt related IPOs
3. Overvaluation Concerns
- GMP drops when analysts flag expensive valuations
- Example: LIC IPO (2022) GMP fell after valuation debates
4. Negative Company Developments
- Regulatory issues, poor financials, or governance concerns
- Example: Go Airlines IPO plans shelved after negative grey market activity
GMP Movement Timeline (Typical IPO Cycle)
| Phase | GMP Trend | Reason |
|---|---|---|
| Announcement | Starts building | Initial hype based on brand/sector |
| Subscription Opens | Volatile movements | Daily subscription data impacts sentiment |
| Subscription Closes | Peak/Low GMP | Final subscription figures set trend |
| Listing Day | Converges to listing price | GMP becomes irrelevant post-listing |
Smart Investor Approach
How to interpret GMP movements:
- Track GMP alongside subscription data – Don’t rely on either alone
- Watch sector trends – IT IPOs underperformed in 2022 despite good GMPs
- Verify valuation – High GMP + reasonable P/E = Better bet
- Set alerts – GMP can change dramatically in final 48 hours
Conclusion
IPO GMP acts as a real-time sentiment indicator, fluctuating based on subscription trends, market conditions, and company-specific factors. While rising GMP suggests potential listing gains and falling GMP warns of risks, smart investors combine this with fundamental analysis for better decisions.
Remember: GMP is most volatile during the last 3 days before listing – stay updated!
