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Overview of unlisted share in india

Author : veron crasta | Published On : 05 Sep 2024

Unlisted shares refer to equity shares of companies that are not listed on a recognized stock exchange like the Bombay Stock Exchange (BSE) or the National Stock Exchange (NSE). These shares are typically traded privately through over-the-counter (OTC) transactions, and they offer investors an opportunity to invest in companies that may not yet be public but hold strong growth potential. The unlisted shares market in India has grown significantly in recent years due to the rise of startups, private companies, and pre-IPO (Initial Public Offering) firms that attract investors seeking high returns.

 What are Unlisted Shares?

Unlisted shares belong to private companies that have not gone through the process of getting listed on a stock exchange. These companies may include startups, early-stage businesses, or mature companies that are planning to go public in the future.

Unlisted shares can be acquired through private placements, employee stock option plans (ESOPs), or directly from existing shareholders. They are not traded through regular stock exchanges but can be bought and sold via OTC transactions facilitated by brokers or investment platforms.

 Types of Companies Offering Unlisted Shares

  • Startups: Early-stage companies that are in the growth phase and might eventually look for venture capital or go public.

  • Pre-IPO Companies: Companies that are in the process of preparing for an IPO, but their shares are still available through private placements.

  • Large Private Companies: These include established private companies that may not seek an immediate listing on a stock exchange but offer equity to investors through private deals.

Advantages of Investing in Unlisted Shares

  • High Growth Potential: Investing in unlisted shares, especially in startups or pre-IPO companies, can offer substantial returns if the company succeeds and eventually gets listed on a stock exchange. This often results in significant capital appreciation.

  • Access to Early-Stage Investment: Investors get access to companies in their early stages of growth, allowing them to participate in potentially high-growth ventures.

  • Diversification: Investing in unlisted shares adds a different asset class to an investor’s portfolio, providing diversification beyond traditional listed equities and mutual funds.

How to Invest in Unlisted Shares in India

Investing in unlisted shares in India can be done through a few channels:

  • Private Placement: Companies may issue shares through private placements to institutional or high-net-worth individuals (HNIs).

  • Stock Brokers: Some stock brokers specialize in dealing with unlisted shares and can facilitate buying and selling transactions.

  • ESOPs (Employee Stock Option Plans): Employees of private companies may receive shares through ESOPs, and these shares can often be sold privately before the company goes public.

  • Pre-IPO Platforms: Several online platforms in India specialize in trading unlisted shares of companies that are close to launching their IPO.

Recent Trends in India’s Unlisted Shares Market

The unlisted shares market in India has grown due to the rise of the startup ecosystem and the increasing number of companies opting for private funding rather than going public. Some notable trends include:

  • Pre-IPO Boom: Many large private companies, such as Ola, Paytm, and Zomato, have attracted investor interest before going public, allowing investors to benefit from the pre-IPO hype.

  • Startup Culture: With the boom in India’s startup culture, many early-stage companies are raising capital through private placements, offering investors a chance to get in at the ground level.

  • Increased Investor Interest: High-net-worth individuals (HNIs) and institutional investors are increasingly looking at unlisted shares as a way to diversify their portfolios and gain exposure to high-growth sectors such as technology, fintech, and consumer goods.

Here are some well-known Indian companies whose shares have been unlisted:

  1. Reliance Retail Limited

  2. HDB Financial Services (HDFC Group)

  3. Tata Technologies

  4. Capgemini Technology Services India

  5. Studds Accessories Ltd.

  6. Oyo Rooms (Oravel Stays Ltd.)

  7. Mobikwik

  8. Nazara Technologies Ltd. (was unlisted before going public)

  9. HDFC Securities Ltd.

  10. Sterlite Power Transmission Ltd.

The availability of shares in these unlisted companies can be limited, and they are often traded through specialized brokers or over-the-counter (OTC) markets

Conclusion

Unlisted shares in India present a unique opportunity for investors seeking high-growth investments outside the public markets. However, investing in unlisted shares requires careful research, due diligence, and an understanding of the risks involved, particularly regarding illiquidity and lack of transparency. Investors with a higher risk tolerance and a long-term investment horizon may find this asset class particularly rewarding, especially in sectors poised for growth or companies nearing an IPO.