With industry-leading prospects, India has witnessed a healthy growth rate in the unlisted market. It is considered an excellent investment opportunity for wealth creation in the long term. There is positive investor sentiment towards the unlisted market. Few names of the most talked-about unlisted companies that can come with their IPOs over the next few months in 2022 are as follows:
- Life Insurance Corporation of India (LIC)
Issue Size: 70,000 crores
- Fincare Small Finance Bank
Issue Size: Rs.1330 Crores
Issue Size: 3600 Crores
- Penna Cement
Issue Size: Rs 1,300 crore
Issue Size: 1900 crores
Issue Size: Rs. 7300 Crores
What are unlisted shares?
An unlisted share is any security or financial instrument that is traded on the over-the-counter (OTC) market and termed as OTC securities. It does not trade on a public stock exchange like NSE or BSE as they do not meet the listing prerequisites. Unlisted securities. Dealers facilitate the purchase and sale of these securities on the OTC market. It can be common stocks, penny stocks, corporate bonds, derivative products like SWAP or government securities.
Key features of unlisted shares:
1. Not Traded on Exchanges: As the name suggests, unlisted shares are not traded on exchanges. They are traded in a separate market segment which is operated by dealers.
2. Price Decision: As these shares are not traded on exchanges, the market participant does the price discovery based on research, value and demand and supply in the underlying securities.
3. Dematerialised form: Unlisted shares come in dematerialised form and are transferred to the Demat account. The customer can check the status using the depository participant account. The trading in unlisted securities is completely digitized.
4. Liquidity: Unlisted shares may require a longer time to get liquidated than listed shares. However, investors usually do not exit from their positions in the OTC market.
Investing in unlisted shares:
You can invest in unlisted shares through the following ways:
1. Pre-IPO investment: Pre-IPO (initial public offering) investing means buying stocks of a company before its listing on the stock exchanges. These are the corporations planning to go public. Recently, NSE shares have been in the news for a considerable rise. It is believed that NSE’s share could see a lisiting gains
These stocks cannot be bought on stock exchanges. Still, they will be delivered to your Demat account. They are bought through intermediaries and platforms specialised in sourcing and placing unlisted securities for trading. These platforms buy stocks from employees with employee stock options plans (ESOPs) or existing investors and offer them to new interested investors.
2. Startups: You can also invest in startups that are expected to grow exponentially in the near future. These companies may not be presently on the radar, but they have the scope to grow massively and become profitable in the future.
3. Private placements: This is the investment in unlisted shares through promoters of a company who may be willing to sell off their shares in that company. They can dilute the ownership they hold. These transactions are named private placements. An intermediary can help you to connect with the company’s promoters.
4. Buying Employee Stock Option Plans (ESOPs): Some companies share their profits with their employees via the ESOP. It is a scheme whereby shares of the company are allotted to the employees at a price lesser than the market value of the share. Employees can sell these shares to interested investors at a higher price. It is another method of buying unlisted shares. Intermediaries keep themselves updated with such employees.
5. Portfolio Management Services (PMS) or Alternative Investment Funds (AIFs): Generally, high net worth investors (HNIs) invest through PMS and AIFs as these funds involve huge amounts of investment. NRIs can also utilise these funds to invest in unlisted shares. Financial institutions manage these funds and capitalise on the lower pre-IPO valuation. Such funds offer higher returns when the listing is done and share value increases.
In the past few years, the pre-IPO market in India has emerged and is open for retail investors also. With the help of a investment management institution like Rurash Financials, which leads the market, you can invest in unlisted shares through any of the above-explained ways. Our expertise and in-depth research assure retail investors as well as HNIs to make the most of the Pre-IPO markets.
What makes Unlisted Shares Attractive in 2022
Why should investors look forward to investment in unlisted shares in 2022? Let us have a look.
Fair Price Valuation and Negotiation
Unlisted markets enable individuals to invest in reasonably priced stocks of unlisted companies with high growth potential. Here, the price valuation is considered a true valuation of the stocks, driven from the growth prospects & supply and demand. Investors and dealers agree on the mutual fair value. The supply of shares is less compared to the demand. It has led to an increase in prices. Investors can negotiate with the intermediary positively. HNIs and institutional investors are also showing increasing interest in these securities.
Minimized credit risk with the reputed participants
Generally, well-known companies, brokerage houses, HNIs and institutional investors are involved in the unlisted market. The reputation of the participants minimizes the credit risk associated with unlisted shares. The risk also reduces if you are guided in trading the unlisted shares by the right partner. RURASH Financials is an ideal investment advisor with all the relevant market information to help you make the correct choice.
Many ace investors have also stated that the returns on their investments in the unlisted shares have yielded higher returns than their listed portfolio. Unlisted shares have been growing at a very fast pace. There was a time when investors doubted the formal status of unlisted shares as an asset class. In recent times, most wealth management companies and banks have promoted these securities, thereby giving them a push.
Long-term opportunity at a low-cost
Unlisted stocks mostly attract long-term investors. Therefore, the impact of any crash or crunch is well-borne by the unlisted market. This is because it attracts investors and not traders. Numerous pre-IPO issues are set to hit the market in 2022, and investors do not want to end up losing an opportunity. Most investors are moving to these unlisted companies to invest at substantially low prices.
Accommodative regulatory Changes
Another factor that makes unlisted shares a big attraction is the recent regulatory changes, supporting the unlisted market. SEBI has reduced the lock-in period of unlisted shares from twelve months to six months. It means that investors can get the portfolio reallocation within a short span of successful IPOs. It will further increase retail participation and reduce the risk of low liquidity.
A treasure mine
Today, with pre-IPO offerings of reputed brands and the regulatory changes in the interest of investors, the unlisted shares market has become a more promising place than ever. The coming year, 2022, is expected to support HNIs and retail investors to reap significant profit in the unlisted market, provided they invest prudently. It is always better to team up with an expert like RURASH Financials to help you with all aspects associated with unlisted investments.