Investors eyes on unlisted shares of IPO-bound firms

In the emerging ever-changing landscape of investing, a new trend is blowing and attracting the attention of savvy investors. This trend that is starting to emerge is unlisted shares of companies that are on its growth stage and preparing for its initial public offering(IPO). These unlisted IPO-bound shares have seen a wonderful surge in prices over the last few months, pushed by a combination of market optimism and the potential value those companies promise. As the equity markets rally on the rise, investors are increasingly turning their gaze towards these hidden gems, hoping to strike gold.

Unlisted shares of companies such as Advent-sponsored Manjushree Technopack, Carlyle backed firm Hexaware Technologies, Mobikwik, NSE, and more are witnessing brisk trade, pushing up their prices. But what makes these shares so appealing, and what should investors consider before diving in?

The Growing Popularity of Unlisted Shares

Unlisted shares are recognized as the equity shares of the companies that are not yet listed on any stock exchange. These shares are held and owned mostly by founders, employees, venture capitalists, and private equity investors and as the popularity and awareness about these shares grows, these shares emerge as surprisingly favorite and attractive to investors as a company moving nears its IPO. The appeal lies in the capability for vast significant returns once the company is going public.

Some Unlisted IPO-Bound Firms

Manjushree Technopack: The unlisted shares of Manjushree Technopack started climbing from August 1 onward, when the news following the reports that its listing was imminent. From August 20, when it filed its papers and documents, there has been a steep climb of 34%, with shares currently trading at around ₹950. In June, its unlisted shares were trading at around ~₹600.

Hexaware Technologies and Mobikwik: Unlisted shares of Hexaware Technologies have doubled & twofold since April, while those of Mobikwik have again started reaching after a decline and are approaching back to their previous highs.

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Why Investors Are Interested

1.  Potential for High Returns: One of the number one attractions of unlisted shares is the potential for significant returns. If the company performs exceptionally well post-IPO, the price and value of these shares can increase dramatically, imparting early investors with remarkable profits and gains.

2.  Early Access to Promising Companies: Investing in unlisted stocks lets investors get the opportunity to invest early in private companies that are not yet listed and become the early stakeholder in those with robust strong growth potential. This early access to investors can be especially appealing for the ones looking to capitalize at the success of revolutionary emerging companies.

3. Diversification:  Unlisted shares offer an approach to diversifying an investment portfolio. Investors can mitigate their risk by including these unlisted shares prior in their investment portfolio and decreasing their reliance on traditional stock market investments.

4. Informed investors' decisions: Investors in unlisted shares often have access to more detailed, comprehensive information about the company's operations, financial health, and growth prospects, up to some extent. This information can provide a chance to identify good potential opportunities for long-term gains when it comes to making investment decisions.

5. Discounted Valuation: Unlisted shares are often available at a lower valuation compared to the expected IPO price. This discount can translate into higher returns for investors once the corporation is going public and its stocks are traded on the stock exchange.

6. Long-Term Investment: Unlisted shares offer an opportunity to hold onto a promising company for an extended long-term period. This long-term perspective provides an advantage, especially in terms of the company continuing to thrive and succeed post-IPO.

Market Dynamics and Expert Insights

According to reports, some analysts and experts have noted that the demand-supply mismatch, overflow of liquidity, and positive KPIs are some of the elements responsible for driving investor’s interest in unlisted shares. Kranthi Bathini, Director of Equity Strategy at Wealthmills Securities, states that the exuberance in the main markets is spilling over into the unlisted sector as well. This trend highlights the increasing confidence in companies preparing for their IPOs and the potential returns they may offer.

Conclusion

Investing in unlisted shares of IPO-bound corporations offers investors a distinctly unique opportunity to gain early access to promising companies to reap substantial returns. However, these investments come with inherent risks and challenges and this is with every investment to step in the market. Nonetheless, investors can mitigate these risks by doing a proper analysis of the company's fundamentals, along with a proper clear exit strategy in mind, and staying informed about the regulatory environment to make mindful investment decisions.

As the market for unlisted shares continues to expand, the abundance of opportunities are awaiting ahead for  investors and would open the door to an exciting avenue to diversify their portfolios and capitalize on the surging potential of emerging companies. With the right approach and due diligence, investing in unlisted shares may be a rewarding addition to an investment approach.

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