Did you know unlisted shares have delivered superior returns over the years as compared to their publicly listed counterparts? Looking at the returns in FY24, the Primex40 index, which tracks 40 unlisted shares, has notably outperformed the Nifty50 index by 15.89%, delivering an annual return of 41%. With these impressive returns, the unlisted share market is proving to be a treasure trove of opportunity, offering savvy investors the chance to achieve exceptional gains beyond traditional public listings.
The below graph demonstrates how Primex40 has outperformed Nifty50(14.7%) by giving a 3-year annualized return of 18.2%. The Primex40 has reached its all-time high which depicts the high potential of Unlisted shares in India and its higher inclusion in investor’s portfolio planning beyond public equity funds.
Understanding Unlisted Shares
Investment in unlisted shares represents the ownership stake of an investor in a private company i.e. a company not listed on the stock exchange.These financial instruments are bought over the counter (OTC) and are not regulated by SEBI like listed shares. Several factors are pushing the growth of Unlisted shares in India, making it an attractive investment option.
Over the last year, TATA Capital’s share price has increased from a price band of ₹460 to listing price of ₹925 showcasing a return of 101% in FY24. The NSE also grew from ₹900 to ₹5,800 generating an absolute return of ~544.4% in 3.9 years.. This surge is attributed to the high demand and bullish sentiments of investors for the unlisted shares which have been gaining momentum now.
Below is a glimpse of unlisted shares that demonstrate an impressive trajectory in terms of revenue and profit growth. The following insights illustrate how these privately held companies achieved extraordinary financial performance in FY21-FY23.
| Company | Revenue Growth (%) | Net Profit (%) | CAGR Returns |
| Barbeque nation | 35.25 | 23.40 | 324.4% |
| Nazara technology | 35.83 | 96.5% | 192.1% |
| Tata technology | 19 | 62.6% | 87.56% |
| D-mart | 28.13 | 31.82 | 60.4% |
| Central Depository Service Ltd | 33.2 | 27.89 | 46.7% |
Let’s look at various methods for investing in unlisted shares:
- Pre-IPO Shares via Private Placements: Private placements offer unlisted shares to a select group of investors directly to raise capital for growth initiatives before they go public. Shares in these early, high-risk companies. are purchased by investors at favorable prices via Pre IPO.
- Employee Stock Ownership Plans (ESOPs): Companies offer ESOPs that grant employees an ownership stake in the company. Employees willing to sell these ESOPs connect with various angel platforms that facilitate the trading of ESOPs..
- Promoter Shares: Investors seeking to acquire a significant stake in an unlisted company may purchase shares directly from the company’s promoters, normally called a secondary sale of shares. This process is typically facilitated through collaboration with investment banks, wealth managers, or brokers, enabling investors to secure equity directly from those who have a substantial interest in the company.
- Investing in AIF – Alternate investment funds invest in the unlisted shares through Category I (Venture Capital Fund and Debt Fund), Category II (Private Equity Fund), and Category III (Hedge Funds). AIF is a fund managed by professional fund managers.
A report by Crisil and Oisterg Global has indicated that AIF benchmarks including Category I and II equity funds that invest purely in unlisted securities belonging to vintage years FY13 to FY22 have generated a 13.5% alpha over the public market index.
Source: Global Private Capital Association :
Understanding how unlisted shares can generate wealth is crucial before exploring this investment option. Let’s look at how investing in unlisted companies can be transformative for investors and how it adds to the opportunities for portfolio enhancement
- Early access to growing companies – Investment in unlisted shares offers the chance to purchase a stake in a company before its initial public offering. To fully realize the development potential of promising Indian businesses, early access is essential.
For example, Ixigo, an unlisted online travel portal company reported a year-on-year (y-o-y) growth of 78% in net profit giving its investors multibagger returns over the year. Also, Niva Bupa Health Insurance, another unlisted share, reported a 44% y-o-y growth in its income and has now filed the DRHP for a ₹3,000 Cr worth IPO this month. Thus, by investing in promising companies at an earlier stage, investors can earn extraordinary returns in the future. - Buying cheap at good valuations: Investors can often buy unlisted companies with potential, at a discounted valuation as compensation for additional risk they take by investing in a private company. Hence, investors can invest in high-valued companies at initial stages and take advantage of price differences.
- Diversification of portfolio: Unlisted shares offer a low correlation with listed stocks, helping to reduce overall portfolio volatility. If an investor would have allocated 20% of their funds for five years in five asset classes namely-Nifty Reality, Nifty Fifty, unlisted shares, Nifty Bank, and Gold. They would have successfully diversified their portfolio and mitigated risk. With Nifty Realty and Unlisted share(Primex40) both high risk assets generating 27% and 18.2% respectively they would have exposure to high-risk investments. Whereas with low-risk assets like Nifty50, bank, Gold, generating returns of 14%,12%,9% respectively would have reduced the risk exposure at the same time, thus diversifying the portfolio.
- Strategic Partnership: Compared to a non-equity relationship, owning shares in an unlisted company provides investors with more power and control over strategic decisions. This motivates an investor to stay invested in a company’s functions for a longer period and monitor how the company is growing. Big institutional investors and qualified investors who hold a number of these unlisted shares often participate in important decision-making of the company.
Conclusion
Unlisted shares are reshaping investment strategies by offering high-growth opportunities and enhanced portfolio diversification. They provide access to early-stage investments, potentially high returns, and reduced market correlation. Additionally, they facilitate strategic partnerships with greater influence over company decisions. As this asset class continues to grow, it presents a valuable opportunity for investors seeking to balance risk and capitalize on emerging growth potentials.
Source Url:- Planify
