Whenever news comes regarding an IPO people usually discuss it’s grey market premium. However there are some other related terms to Grey market premium is Kostak and Subject to Sauda. Let’s discuss What is kostak rate meaning? and other terms in detail.
Table of Contents
What is Kostak?
The additional amount in rupees at which IPO applications are sold in the IPO Grey Market is known as kostak (or price of application). The bonus of a maximum lot retail application in an IPO is generally described as the ‘Kostak’ value.
The Kostak price is significant primarily before the offer is closed for subscription and the ultimate bidding status is made accessible to IPO participants. After the final auction status is known to investors, only a small percentage of IPO applications are exchanged.
‘IPO Kostak’ is made for those who do not want to incur a risk on an IPO or gain from a listing.
ipo kostak Example:
Shyam Metalics Limited
Issue Price: Rs 306 Per Equity Share (Maximum Bid price)
Lot Size: 45
Grey Market Premium: Rs 220 to Rs 230
IPO kostak (Rs 13770): Rs 680 to Rs 720
This means Shayam Metalics Limited applications of Rs 13770 are being traded in IPO Grey Market at Rs 680 to Rs 720.
Despite the fact that this IPO’s Grey Market Premium is roughly 75% of the issue price, the ‘ipo kostak’ is just 5% of the application value.
Reason
This is because Grey Market dealers believe the offering will be heavily oversubscribed, and that no definitive allotment would be made, even for individual investors who apply the full Rs 13770 lakh.
They assume that one out of every two people will be allocated, and that a Rs 27554 investment will yield a Rs 1440 return. They are willing to buy 13770 applications for Rs 680 in this manner.
Other Related Terms
Grey Market
People buy and sell IPO stocks or applications before they are formally introduced for trading on the stock exchange in an illegal market known as Grey Market.
There are no restrictions in place because it is an unofficial over-the-counter market. All transactions are carried out in cash and on a one-on-one basis.
This transaction is not backed or supported by any third-party organisations such as SEBI, the Stock Exchange, or brokers. Because there is no authorized system or set of laws for grey market trade, it is done by a small group of people.
Grey Market Premium
The grey market premium (GPM) is the price at which grey market IPO shares are sold before they are listed on the stock exchange.
Simply put, the stock of the company that issued the initial public offering (IPO) is bought and sold outside of the share market.
The GPM predicts how the IPO will perform on its first day of trading.
Example
If a business issues an IPO for Rs.100 and the grey market premium is around Rs.20, we can expect the IPO to list at roughly Rs.120 on the first day of trading. There is no guarantee of accuracy, but in the vast majority of cases, the GMP is correct and the IPO is listed at the provided price.
Subject to Sauda
Subject to Sauda is a type of agreement in India’s IPO Grey Market. Before the IPO Stocks are offered in the public market, an user can sell an IPO Application to a bidder at an agreed price (Kostak Rate).
When selling an IPO application in the grey market, the buyer and seller acknowledge that the sale will only be legal if the seller receives the allocation. The agreement is null and void if the seller does not get any stocks throughout the IPO application.
Example
A firm called XYZ is planning an initial public offering (IPO) at a price of Rs 100 per share. The initial public offering (IPO) stocks are planned to go public in 15 days. On ‘Subject to Sauda,’ a seller might sell his Retail IPO allocation of Rs 2 lakhs for Rs 5000.
If the provider is successful in getting an allocation, he would be paid Rs 5000. The provider will receive nothing if he does not receive an allocation.
Conclusion
Kostak plays a major role in Grey market premium. However, We advise an investor to deal quite carefully if you wish to deal in the grey market as it is not official at all.
This is all from our side regarding what is kostak? Although, if you have any doubts about kostak meaning you can just comment below.
Other Interesting blogs related to what is kostak rate?
Difference Between IPO and FPO
FAQ About kostak meaning
What is grey market?
People buy and sell IPO stocks or applications before they are formally introduced for trading on the stock exchange in an illegal market known as Grey Market.
What is gmp and kostak
GMP is Grey Market premium and Kostak is the premium on the basic price.
kostak in hindi?
रुपये में अतिरिक्त राशि जिस पर आईपीओ ग्रे मार्केट में आईपीओ आवेदन बेचे जाते हैं उसे कोस्तक (या आवेदन की कीमत) के रूप में जाना जाता है। आईपीओ में अधिकतम लॉट रिटेल एप्लिकेशन के बोनस को आमतौर पर 'कोस्तक' मूल्य के रूप में वर्णित किया जाता है।
How to trade in grey market?
To trade in Grey market You must contact offline brokers and dealers. Which you can easily find if you contact small stock brokers of your city.
What is s.s. in ipo?
S.s Means Subject to Sauda in IPO.
