August 22, 2025
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What is Kostak Rate in IPO Grey Market? Complete Guide with Example
What is Kostak Rate in IPO Grey Market?
The Kostak rate in the IPO grey market refers to the fixed price at which IPO applications are bought and sold, regardless of the final allotment outcome. It is essentially the premium an investor can lock in by selling their IPO application before the allotment process is completed.
The Kostak rate is determined by mutual agreement between the seller and the buyer in the grey market. Importantly, the price is set per application (entire lot), not per share.
Example of Kostak Rate
Suppose:
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Investor A applies for 10 lots of an IPO at Rs. 100 per share.
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Each lot has 15 shares, so the total application value is Rs. 15,000 (10 × 15 × 100).
Now, Investor B agrees to buy the application at a Kostak premium of Rs. 2,000.
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If Investor A gets full allotment and the stock lists at Rs. 150, then Investor A must pass on all listing gains to Investor B and only keeps the fixed Rs. 2,000 profit.
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Investor B’s profit = (Listing gain Rs. 7,500 – Kostak Rs. 2,000) = Rs. 5,500.
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Alternatively, Investor B can directly take delivery of the shares by paying Investor A the application amount + Kostak (Rs. 15,000 + Rs. 2,000 = Rs. 17,000).
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If Investor A does not get any allotment, he still receives the Kostak premium of Rs. 2,000.
Thus, the Kostak rate offers a risk-free profit to the seller of the application, while the buyer takes on the potential upside or downside based on IPO allotment and listing.
Kostak rate is the fixed price paid for buying or selling an entire IPO application in the grey market, irrespective of whether the investor gets an allotment.
GMP is the premium per share of an IPO in unofficial trades, whereas Kostak rate applies to the entire application. GMP reflects expected listing price; Kostak secures guaranteed profit.
Some investors prefer guaranteed profit without waiting for allotment or market risk. By selling at a Kostak rate, they lock in fixed returns.
Yes, in weak IPOs where market sentiment is poor, Kostak rates can turn negative, indicating buyers are unwilling to pay a premium for the application.
The IPO grey market (including Kostak and GMP) is unofficial and unregulated, meaning it operates outside SEBI regulations. Investors participate at their own risk.
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