A stock market investment can turn out to be very gainful, especially for seekers eyeing opportunities beyond the usual listed stocks. Unlisted stocks may turn out to be high growth investments tagged as risky with high returns. This blog explores reasons for investing in unlisted stocks, differences between listed and unlisted companies, and benefits vs. risks of such investments.
The Shift from Zomato to Swiggy
A few days ago, what was interesting was the shift in the investment strategy of an investor who sold 70% of his holdings in Zomato to reinvest in Swiggy. This certainly raises questions on the comparative valuations of these comparable companies. Though both companies engaged in food delivery are connected with food delivery, this particular investor believes that at this stage the valuation in Swiggy will turn out better.
Understanding Company Valuations
Valuation is the key to any investment decision. Zomato scaled so well from its inception and is now valued close to $23 billion. That cannot be said for Swiggy, which, although it is an intense competitor, is currently valued around $11 billion to $13 billion in the unlisted market. This clearly indicates that growth potential in Swiggy is very strong and hence can become a very exciting investment opportunity.
What Are Unlisted Stocks?
Unlisted stocks are shares of companies not trading on public exchanges. They mostly exist in stages between pre-IPO and IPO, meaning they are not yet open to the public for trading. Grasping this phase is important if one as an investor intends to tap into their huge growth potential.
The Journey of Listed Companies
To understand the unlisted stocks, one has to necessarily learn the journey that companies go through when they get listed. Companies like Zomato raise rounds from seed funding to Series A, B, and C and involve venture capitalists along the way. Just when they get big enough, they veer toward an IPO and let retail investors buy and sell shares in the open market.
The Role of Venture Capitalists
Venture capitalists are investors who have a significant role in the growth of any startup. Basically, venture capitalists are people who invest in early-age companies and get equity in return, which can be really juicy if the company turns out to be successful. This is what will explain the metamorphosis of companies like Zomato and Swiggy down the line.
Now, moving on to Unlisted Stocks:
Such unlisted stocks can be a very strategic investment before the company goes public. Swiggy, Oyo, and HDB Financial Services are examples of unlisted firms with good growth opportunities that can be granted. How an investor can get these opportunities, and through which platforms, is the question.
How to Get Access to Unlisted Stocks
One such platform that enables investment in unlisted stocks is InCred Money. The platform permits investors to delve into multiple unlisted shares while equipping them with information and insights to make learned decisions. A user can track companies, their performance, and market trends.
Regulatory Framework
The companies’ unlisted entities come under the control of the Ministry of Corporate Affairs. Details can be obtained from the ministry’s official reports on payment of some fee. This regulation ensures that transparency is maintained to a certain extent, and the investor can do his due diligence before investment.
Advantages and Disadvantages of Investment in Unlisted Stocks
Investment in unlisted stocks is a very critical decision, and hence it becomes very imperative to measure all the pros and cons associated with such investments. The major ones are mentioned as follows:
Pros
•Valuation Opportunities: Most unlisted stocks are sensibly priced with respect to their listed peers in a high-interest rate environment.
- Market Premiums: Unlisted equities can see significant appreciation following listing, thereby enabling early investors to reap a good market premium.
- Certainty of Allocation: Investing in unlisted stocks gives an investor a better chance at getting an allotment of shares pre-IPO because it is quite uncertain for retail investors to get allotment during public issues.
Cons
- Valuation Risks: The absence of public information may lead to misvaluation; hence, the onus of proper research lies with investors.
- Lock-in Period: That’s to say, post an IPO, the investor might be put in a lock-in period where they are not allowed to sell their shares in the company, much like the insiders themselves.
- Liquidity Risks: Unlisted stocks could be tough to sell, particularly when the IPO gets delayed by a company, and the investors have no clear exit strategy.
Factors to Be Considered in Investment Strategy
Investors have to look at their overall portfolio strategy before dipping their toes into unlisted stocks. It needs to assess the risk tolerance, investment horizon, and characteristics of the companies under consideration. Of course, reputable companies with sound fundamentals will be most helpful in avoiding risks.
Building a Strong Portfolio
While you are making a portfolio with unlisted stocks, focus on those credible brands which have shown their mettle in the past. Those companies that have the backing of credible promoters and fairly established models have more chances of sustaining themselves and doing well in the long run. Investing in those kinds of firms can increase the chances of successful IPO and subsequent returns.
Conclusion: Should You Invest in Unlisted Stocks?
Ultimately, the decision to invest in unlisted stocks depends on the individual’s circumstantial and investment goals. It comes with intrinsic risks, but very high returns could be too good to resist for the right kind of investor. Do your proper research, stay updated about market trends, and consider all the opportunities offered by a platform such as InCred Money.
In other words, unlisted shares are a distinct investment opportunity that needs caution and scrutiny. Grasping the lay of the land and making good decisions places investors in the best position for growth in this dynamic market.
Disclaimer: The information is only for information purpose only. It is always recommended to consult with certified financial experts before making any investment decisions. Follow busymoneyfreak.com .