Kostak Rate vs GMP: Which One Should You Trust?

If you have spent more than five minutes researching an IPO, you have encountered three terms from the grey market: GMP, Kostak, and Subject to Sauda. Most investors know GMP. Fewer understand how Kostak and Subject to Sauda relate to it -- and what each tells you that the others don't. This guide gives you all three in one place.

The Three Grey Market Instruments: A Quick Overview

Term	What You Buy/Sell	Allotment Risk	What It Measures
GMP	Specific shares (per share basis)	N/A -- price is per share	Expected listing price vs issue price
Kostak	Entire application (regardless of allotment)	Buyer takes all risk -- pays even if no allotment	Scarcity of allotments + listing premium combined
Subject to Sauda	Entire application (conditional on allotment)	Deal void if no allotment -- seller retains risk	Value of an allotment itself, minus allotment risk

GMP: Per-Share Grey Market Premium

GMP is the simplest of the three. It is the premium per share over the issue price at which IPO shares are being traded in the grey market before listing. If the issue price is ₹500 and GMP is ₹80, grey market traders are exchanging shares at ₹580.

GMP tells you: "If I could buy this share right now in the grey market and hold to listing, the market expects me to make ₹80 per share."

Who uses GMP: investors who want to gauge the expected listing price. It is the most widely quoted and most useful retail signal of the three.

Kostak: The Application Premium

Kostak is the price paid to purchase an IPO application -- the entire application, regardless of whether the applicant gets allotment. If you applied for an IPO and a grey market buyer offers you ₹2,000 kostak, they pay you ₹2,000 regardless of allotment outcome. You transfer your application to them. If you get allotment, the shares go to the buyer. If not, they paid ₹2,000 for nothing.

Kostak tells you: "How much are people willing to pay for the possibility of an allotment -- at the expected listing premium?"

Subject to Sauda: Conditional Application Premium

Subject to Sauda (STS) is similar to Kostak but with a key difference: the deal only executes if the seller gets allotment. If you agree to sell your application at STS of ₹1,500 and you do not get allotment, the deal is void -- you pay nothing and receive nothing. If you get allotment, the buyer pays you ₹1,500 and takes the shares.

STS tells you: "How much are people willing to pay for a confirmed allotment -- with no risk of paying for non-allotment?"

STS is always lower than Kostak because the seller retains the allotment risk. Kostak buyers pay a premium for taking that risk.

Working Example: How All Three Interact

Let's use a concrete example. A mainboard IPO has:

• Issue price: ₹500
• Lot size: 30 shares per application
• GMP: ₹80 per share
• Kostak: ₹1,800 per application
• Subject to Sauda: ₹1,400 per application

At a GMP of ₹80 on 30 shares, the expected listing gain per application is 30 x ₹80 = ₹2,400. Kostak is ₹1,800 -- lower than the full expected gain because Kostak buyers take allotment risk. If 5% of applicants get allotment, paying ₹1,800 for a 5% chance at ₹2,400 is the buyer's bet.

STS is ₹1,400 -- even lower because the seller keeps the risk of non-allotment. This is the floor: what a confirmed allotment is worth after the expected listing gain is calculated and a risk discount applied.

What the Kostak-to-GMP Ratio Tells You

Divide Kostak by (GMP x lot size) to get the "allotment scarcity ratio." In the example above: 1,800 / (80 x 30) = 1,800 / 2,400 = 0.75.

Kostak / (GMP x Lot)	What It Implies
Below 0.5	High allotment probability -- market thinks you will get allotment easily
0.5 to 0.8	Moderate subscription -- allotment uncertain but likely for most applicants
Above 1.0	Very high subscription -- allotment is scarce, market willing to pay above expected gain for the option

When Kostak is above GMP x lot size, it means the market believes allotment probability is low enough that buyers will pay above the expected gain for the certainty of an allotment. This is a signal of very high oversubscription.

High Kostak + Low GMP: The Dangerous Combination

Occasionally you see: Kostak high (₹3,000+), but GMP low or falling (₹20-30). This disconnect means the grey market is saying two things: (1) allotments are scarce -- subscription is very high, but (2) the listing premium is not expected to be large.

For retail investors who applied in the hope of listing gains, this is a warning. Even if you get allotment, the expected gain is small. The high kostak is driven by subscription-side demand from traders, not by listing-side confidence.

When to Use Each Metric

• Use GMP if you want to estimate the listing price and decide whether the listing gain justifies applying
• Use Kostak if you applied and want to exit your application before listing, transferring both the allotment risk and listing risk to a buyer
• Use STS if you applied and want to lock in a profit on your allotment slot without risking a zero-allotment outcome
• Use Kostak-to-GMP ratio if you want to estimate expected subscription level and allotment probability

For most retail investors tracking IPOs from the outside, GMP is the relevant signal. Kostak and STS matter primarily if you are actively participating in grey market transactions -- which carry counterparty risk and are unregulated.

Frequently Asked Questions: Kostak Rate and GMP

What is Kostak rate in IPO?

Kostak is the amount a grey market dealer pays to purchase an entire IPO application before allotment results are announced. If the Kostak rate is ₹2,000 per application and you sell your application, you receive ₹2,000 regardless of whether you get allotted shares. Kostak eliminates both your allotment risk and your listing risk in exchange for a fixed premium. Kostak rates are typically higher for heavily oversubscribed IPOs where allotment is very uncertain.

What is the difference between Kostak and GMP in IPO?

GMP (Grey Market Premium) is the per-share unofficial premium above the issue price. Kostak is the per-application premium paid before allotment. GMP tells you the expected listing gain per share. Kostak tells you what a grey market buyer will pay for your entire application slot, regardless of allotment. A rough relationship: if GMP is ₹50 and lot size is 50 shares, the implied per-application gain is ₹2,500 - if Kostak is significantly above ₹2,500, allotment probability is very low (more than compensating for the risk).

What is Subject to Sauda (STS) in IPO?

Subject to Sauda (STS) is a grey market transaction where you sell your allotted shares before listing, but the deal only executes if you actually receive an allotment. Unlike Kostak (which is paid regardless of allotment), STS settles only when allotment happens. STS rate is typically higher than Kostak because the buyer takes on allotment uncertainty. Example: Kostak ₹1,500, STS ₹2,200 - the STS pays more because it only triggers on allotment.

What does high Kostak rate mean for IPO listing?

High Kostak relative to expected GMP gain suggests the IPO is oversubscribed with very low allotment probability. For example: ₹3,000 Kostak on an IPO where GMP implies ₹1,800 per-application gain means grey market buyers expect very few applicants to get allotted. High Kostak alone does not predict a strong listing - it predicts high subscription. Always compare Kostak to GMP to understand both signals together.