Kostak Meaning In Ipo

Kostak meaning in ipo

      – ABC Limited

            – Issue Price: Rs 100 per equity share
            – Grey Market Premium: Rs 200 (Buyers)

This means buyers are ready to buy ABC LTD shares at Rs.

Kostak meaning in ipo

100+200=Rs.300/-

      – XYZ Limited

            – Issue Price: Rs 100 per equity share
            – Grey Market Premium: Rs -10 (Seller)

This means sellers are ready to sell XYZ LTD. shares at the discount of Rs 10. i.e.

Kostak meaning in ipo

100-10 = Rs 90.

As you can see GMP as the word Buyer/ Seller appended to the premium value. This indicates that the price being shown is one at which a buyer is willing to buy or the seller is willing to sell respectively.

In many a forum online, you will see GMP listed without mentioning either Buyer or Seller with it.

Meaning of Grey Market Premium

Very often, sellers tend to leave this out. If you are planning to trade on the grey market, be watchful of this and make sure you know whether it is Buyer or Seller GMP based on the context it is mentioned in. Typically, if nothing is mentioned – it may be the Seller price.

 What is KOSTAK?

Kostak Rate is the rate at which you can sell the IPO application for a fixed price irrespective to you get IPO allotment or not.

The rate at which one gets premium by selling his/her shares which are allotted in IPO application in the grey market is called Kostak.

It is the premium at which IPO application is being traded in the grey market.

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Applications are typically traded after the application window is closed but the allotment has not yet been finished. It is rare for someone to trade IPO application post-allocation. This is a way for investors to increase their chance of shares being allotted as the allocation process treats each retail application equally.

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An example (indicative) for kostak is:

        – ABC Limited
              – Issue Price: Rs 480 Per Equity Share (at upper band)
              – Lot Size: 14
              – Grey Market Premium: Rs 350 to Rs 360
              – Kostak (Rs 100000): Rs 2500 to Rs 2600

As can be seen, the Kostak is at a much lower %age than GMP. This indicates that the grey market expects the issue to be oversubscribed and expects on an average only one lot to be allocated per application.

Should you trade in the grey market?

Unless you have a very specific reason to do so, do not trade in the grey market.

Kostak meaning in ipo

Further, remember that the grey market is a very small percentage of the Indian share market, and therefore, they are not a very good indicator of how the markets at large would behave. GMP and Kostak reflect the supply and demand in the grey market alone – these could be very different from what one will witness at the stock exchange.

Your decision to invest in a company should be based solely on the strength of the fundamentals of the company.

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The subscription percentage, GMP and kostak should play no role at all in your decision. If you think you will miss out on a lucrative IPO – do not panic and buy shares/ applications in the grey market. It is better to wait for a better opportunity later on.

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Remember, the fundamentals of the company will not change overnight and you should only buy the shares when the stock is undervalued by the market vis-a-vis the intrinsic valuation you estimate.

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GMP could either be a positive or negative – meaning the trading price in the grey market is either higher or lower than issue price respectively, based on demand and supply for the shares.

Typically, investors who do not want to take the risk of allocation not happening through IPO will buy shares in the gray market and hope to flip the shares on listing to make a good profit. For example (values indicative only):