Yes, GMP can be negative. In the IPO market, a negative Grey Market Premium clearly indicates weak demand for an IPO before its listing. It shows that traders in the unofficial grey market are willing to buy IPO shares at a price lower than the issue price.
Understanding negative GMP is important for retail investors because it reflects market sentiment, not guaranteed listing performance.
What Is Grey Market Premium (GMP)?
Grey Market Premium is the extra amount at which IPO shares are traded in the unofficial market before listing. It is not regulated by SEBI and operates purely on demand and supply.
If the issue price of an IPO is ₹100 and GMP is ₹20, it means the share is trading at ₹120 in the grey market.
If the GMP is -₹10, it means the share is trading at ₹90, below the issue price.
What Does Negative GMP Mean?
A negative GMP IPO means the IPO is trading at a discount in the grey market. This usually signals low investor interest or negative perception about the company or its valuation.
It suggests that grey market participants expect the stock to list below its issue price.
Common Reasons for Negative GMP
Several factors can lead to a negative GMP.
Overvaluation of the IPO compared to peers
Weak financial performance or declining profits
Poor overall stock market sentiment
Low subscription demand from anchor or institutional investors
Unfavourable industry conditions
Lack of investor trust in promoters or business model
Negative GMP is often seen in bearish markets or during periods of low liquidity.
Can an IPO With Negative GMP Still Perform Well?
Yes, it is possible, though uncommon.
GMP is based on unofficial trades and short-term sentiment. Sometimes, strong institutional buying on listing day or positive market movement can support the stock price.
However, statistically, IPOs with negative GMP have a higher probability of listing at a discount.
Is Negative GMP a Warning Sign for Investors?
Negative GMP should be treated as a caution signal, not a final verdict.
Investors should use GMP only as a sentiment indicator and not as the sole basis for applying or avoiding an IPO. Fundamental analysis remains more important.
Difference Between Positive, Zero, and Negative GMP
| GMP Value | Market Sentiment | Expected Listing Trend |
|---|---|---|
| Positive GMP | Strong demand | Likely premium listing |
| Zero GMP | Neutral demand | Flat or near issue price |
| Negative GMP | Weak demand | Possible discount listing |
Should Retail Investors Avoid IPOs With Negative GMP?
Not necessarily.
Long-term investors may still consider the IPO if the company has strong fundamentals, reasonable valuation, and growth potential.
Short-term listing gain seekers usually avoid IPOs with negative GMP because the probability of listing loss is higher.
Key Points to Remember About Negative GMP
GMP is unofficial and unregulated
Negative GMP reflects short-term market sentiment
It does not guarantee listing loss
Company fundamentals matter more for long-term investment
Market conditions can change suddenly
Frequently Asked Questions
Can GMP go below zero?
Yes. GMP can be negative when IPO shares trade below the issue price in the grey market.
Does negative GMP always mean listing loss?
No. While it increases the risk of discount listing, it is not guaranteed.
Why do some good companies have negative GMP?
Sometimes market conditions, high valuation, or poor timing of the IPO can result in negative GMP despite strong business fundamentals.
Is GMP reliable for IPO investment decisions?
GMP is only a sentiment indicator. It should not replace financial analysis, valuation checks, and risk assessment.
Can GMP change before listing?
Yes. GMP is highly dynamic and can change multiple times before the IPO listing day.
Expert Comment
Negative GMP reflects short-term market psychology rather than the true worth of a company. Investors should avoid making emotional decisions based only on GMP and instead focus on financial strength, valuation comfort, and long-term business sustainability.
