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Kostak is the premium amount of rupees at which IPO application are traded on the IPO Grey Market. Usually, the 'Kostak value' is the premium for a maximum number of retail applications in an IPO.
Kostak price is crucial before the issue is close for subscription. Only a few IPO applications are traded once final bidding status has been established.
Who doesn't want to take on any risk related to IPO allotment and listing gains, Kostak is for them
Example:BGR Energy Limited
Issue Price: Rs. 480 / Equity Share (at the upper band).
Lot Size: 14
Grey Market Premium: Rs 350 - Rs 360
Kostak (Rs 10000): Rs 2500 - Rs 2600
BGR applications worth Rs 1 lakh are traded on the IPO Grey Market at Rs 2500 - Rs 2600
The Grey Market Premium for this IPO is approximately 75% of issue price. However, the 'Kostak" is only 5%. Grey Market traders assume that there will be a high number of applicants and no firm allocation for those who apply full Rs 1 lakh. They assume that one in two people will be allotted and therefore Rs 2 lakh investment will yield them approximately Rs 5000 return. They are now ready to purchase 1 lakh applications for Rs 2500.
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