What is IPO GMP (Grey Market Premium)?

IPO Grey Market Premium (GMP) is an unofficial cash premium over the issue price at which shares of an upcoming IPO trade before being officially listed on the stock exchange (BSE/NSE).

How is the estimated listing price of an IPO calculated?

Estimated Listing Price is calculated as: Upper Band Issue Price + Current Grey Market Premium (GMP).

What is the Kostak rate in IPO trading?

Kostak rate is the fixed profit amount paid to an IPO applicant for selling their application to a buyer prior to allotment, regardless of whether shares are allotted.

Do I get paid Kostak money even if I get zero shares in the IPO allotment?

Yes. Kostak is paid strictly for submitting a verified IPO application regardless of allotment outcome. If your bid is not allotted, you still keep the agreed Kostak fee.

What happens to Subject to Sauda if zero allotment occurs?

Under a Subject to Sauda agreement, the contract is completely nullified if no shares are allotted. The seller receives ₹0 and the buyer pays ₹0.

Are Kostak and Sauda trades legal and SEBI approved?

No. The grey market operates as an informal, unregulated peer-to-peer over-the-counter arrangement without legal recourse, SEBI backing, or exchange protection. Deals rely entirely on personal counterparty trust.

How is Kostak rate calculated on SME IPO applications?

SME IPO Kostak rates are quoted on a per-application basis, typically ranging from ₹5,000 to ₹30,000 depending on grey market sentiment and oversubscription expectations.

Grey Market Terminology 2026

Kostak & Subject to Sauda Meaning: Real-Life Calculations

In India's parallel unlisted IPO ecosystem, participants utilize three primary pricing mechanisms: Grey Market Premium (GMP), Kostak Rate, and Subject to Sauda. While GMP quotes the expected premium per share, Kostak and Sauda define full contract transfers.

Core Definitions & Settlement Formulas

MECHANIC A

Kostak Rate (Fixed Application Fee)

The fixed cash sum a buyer pays an IPO applicant for the right to buy their application before allotment. Whether the applicant receives 1 lot or 0 lots, the Kostak amount is unconditionally paid.

Seller Payout = Guaranteed Kostak Amount (Even if Allotment = 0)

MECHANIC B

Subject to Sauda (Conditional Lot Deal)

A conditional agreement where the buyer promises to pay a fixed lump-sum profit only if and when an allotment occurs. If zero shares are allotted, the transaction is void.

Seller Payout = Sauda Amount (If Allotted); ₹0 (If Not Allotted)

Side-by-Side Settlement Scenarios

Consider a Mainboard IPO with a lot size of 30 shares at ₹500 per share (₹15,000 total application value). An applicant enters into both deals with informal dealers:

Outcome Scenario	Kostak Deal (₹500 fixed)	Subject to Sauda (₹4,500)
Scenario 1: Zero Allotment	Applicant earns ₹500 profit	Deal cancelled; ₹0 profit
Scenario 2: Allotted & Lists at ₹1,000 (+100%)	Applicant hands over shares; gets ₹500	Applicant hands over shares; gets ₹4,500
Scenario 3: Allotted & Lists at Discount (-10%)	Buyer absorbs loss; applicant keeps ₹500	Buyer absorbs loss; applicant keeps ₹4,500

Before committing an application to informal dealers, prudent market observers review informal grey market trades to gauge dealer spread margins and avoid selling applications far below real value.

Regulatory Warning on OTC Grey Transactions

Neither the Securities and Exchange Board of India (SEBI) nor stock exchanges recognize or sanction Kostak or Sauda arrangements. Because these agreements are settled off-market in cash or private transfers, there is substantial counterparty default risk if the buyer fails to honor payments on listing morning.