Introduction
If you have ever browsed an IPO GMP tracker, you have probably seen three numbers quoted together: GMP, Kostak, and Subject to Sauda. GMP is relatively well-known, but Kostak and Subject to Sauda are often confusing for new investors. This guide explains exactly what the Kostak rate is, how it differs from Subject to Sauda, and whether it is worth selling your IPO application on the grey market.
The Basics of the Indian IPO Grey Market
The IPO grey market is an unofficial, over-the-counter marketplace in which investors buy and sell IPO applications and allotted shares before listing. It operates outside the regulatory framework of SEBI, NSE, and BSE, and is concentrated in Mumbai, Ahmedabad, Surat, and Rajkot.
Three prices are commonly quoted:
- **GMP** — the premium over the issue price for one allotted share - **Kostak rate** — a fixed payment for transferring your entire IPO application - **Subject to Sauda** — a payment that depends on actual allotment
What is Kostak?
The Kostak rate is the fixed amount a grey market buyer agrees to pay the IPO applicant in exchange for the right to the application — regardless of whether the applicant receives any allotment. The name "Kostak" is believed to have originated among Mumbai's IPO brokers and is now standard terminology across India.
Here is how a Kostak deal works:
1. You apply for an IPO worth ₹15,000 (one lot of a typical mainboard issue). 2. A grey market dealer offers you a Kostak rate of ₹500 per application. 3. You agree. The dealer pays you ₹500 upfront or post-listing. 4. If you get allotment, you transfer the shares (or sell on listing and remit the proceeds). 5. If you do not get allotment, the dealer still pays you ₹500 and the deal is closed.
The key feature is that Kostak is a fixed, guaranteed amount. You lock in a small profit regardless of allotment luck or listing-day volatility.
What is Subject to Sauda?
Subject to Sauda, often abbreviated STS, is the other common grey market price. Unlike Kostak, STS is only paid if the applicant actually receives allotment. It is typically 8–15 times higher than the Kostak rate because the buyer is paying only for applications that convert into listed shares.
Example: an IPO with a Kostak rate of ₹500 might have an STS rate of ₹6,000. If you do not get allotment, you receive nothing. If you do, you receive the full ₹6,000.
Retail investors chasing multiple applications via family PANs often prefer STS deals because the upside is larger. Applicants who want guaranteed income prefer Kostak.
Who Buys Kostak and STS Applications?
Grey market buyers are typically HNIs, sub-brokers, and networked dealers who aggregate hundreds of applications to increase their overall allotment probability. By pooling applications, they convert a low per-application hit rate into a predictable bulk allotment.
Is Kostak Trading Legal?
The IPO grey market operates in a legal grey zone. There is no explicit law prohibiting grey market trades, but there is also no legal enforcement mechanism. If your Kostak counterparty refuses to pay, you have no recourse in court. All grey market trades are settled on trust and personal reputation. We strongly discourage grey market trading for most retail investors because of this counterparty risk.
How Kostak and STS Compare to GMP
GMP is a per-share premium quoted as if you already hold the shares. Kostak is a per-application payment regardless of allotment. STS is a per-application payment conditional on allotment.
If you expect to get allotment, STS is usually more profitable than Kostak. If you are worried about not getting allotment, Kostak gives you a guaranteed payout. GMP tells you roughly what the listing premium will be if you hold your own shares to listing day.
Risks
- **Counterparty default** — the grey market buyer may not pay. - **Price reversal** — GMP can evaporate on listing day, eroding Kostak economics for the buyer and creating payment delays. - **Regulatory risk** — while not illegal, SEBI has occasionally warned investors against grey market dealings. - **No legal protection** — you cannot sue to enforce a grey market contract.
Conclusion
Kostak and Subject to Sauda are mechanisms by which IPO applicants can monetise their applications before allotment. Both rely on an unregulated grey market and carry counterparty risk. For most retail investors, the safer path is to simply apply, hold to listing, and sell on the exchange. ipomarket.in publishes live Kostak and STS rates as informational data only — we do not facilitate grey market trading.