Ahead Of NSE's Mega IPO, Unlisted Share Frenzy Heats Up: Smart Move Or Risky Bet?

There is a lot of buzz around the upcoming initial public offering of the National Stock Exchange (NSE). As NSE nears its public market debut after a decade of waiting and legal proceedings, investors, irrespective big and small alike, are eagerly looking forward to the public issue.

Amid the buzz, market participants are looking at ways to acquire shares of the exchange in advance to make the most of the potential listing pop. Buying unlisted shares of IPO bound firms has emerged as a popular route to acquire equity before the issue opens to the general public.

Unlisted NSE Shares Generate Demand

Amid high investor interest, NSE shares have been commanding a premium in the off-market space. According to multiple websites which track the prices of unlisted shares, NSE shares currently trade in a range of Rs 1900 to Rs 2100 per share. However, investors must note that these price bands fluctuate based on transaction size, immediate demand and supply imbalances, and investor sentiment around the stock.

How Unlisted Shares Are Bought

Amid the demand, investors often wonder how unlisted shares can be purchased. Since they are not sold on the exchanges like listed shares, the process for selling and buying such securities differs from portal to portal.

However, typically, the process involves registering on a dedicated unlisted share trading portal, which connects prospective buyers and sellers who have the stock. Next, investors need to complete a KYC process, verify their bank details and then place and confirm the order quantity. Sellers transfer the shares upon payment confirmation, directly into the buyer's Demat account via an off-market delivery instruction slip.

High net worth individuals often source these shares through private wealth management firms or brokerages which aggregate shares liquidated by early venture funds or company employees who originally were allotted Employee Stock Ownership Plans (ESOPs).

What Investors Must Know Before Buying Pre-IPO Equity

On paper, the idea of buying a stock before its public issue seems like a win. Especially given the fact that applying for the stock during the IPO window leaves your allotment to chance, you may or may not end up owning the shares in demand based on the overall demand for the stock.

However, the reality of acquiring unlisted shares involves navigating structural risks. The most critical drawback is tackling illiquidity. Unlike listed stocks that can be sold instantaneously during market hours, unlisted shares cannot be offloaded on short notice. Finding a willing counterparty during market downturns can take weeks.

Additionally, the unlisted market or grey market lacks transparent real-time price discovery, leaving retail buyers vulnerable to buying at inflated price levels driven purely by buzz, hype or speculative euphoria.

To understand how pre-listing valuation premiums can backfire, investors should examine the SBI Funds Management IPO. Data from Wealth Wisdom India, a financial platform which enables the sale and purchase of unlisted shares, shows that a month ahead of the asset manager’s public issue, the unlisted shares of SBI Funds Management traded in the range of Rs 790 to Rs 865 per share.

On the other hand, the price band for the stock was fixed at Rs 545 to Rs 574. The stock eventually listed at Rs 613.30 on the National Stock Exchange (NSE) and Rs 610.00 on the Bombay Stock Exchange (BSE) on July 21, significantly below the grey market price.

For an investor who purchased shares at the upper unlisted band of Rs 865 on WWIPL, the listing price of Rs 613.30 resulted in an immediate loss of Rs 251.7 per share, translating to a steep capital erosion of 29.09 per cent on day one.

Even an investor who managed to buy at the lower end of Rs 790 absorbed a 22.36 per cent loss. Bound by the Securities and Exchange Board of India’s regulatory lock-in rules, these investors were unable to exit and had to hold a loss-making stock on listing day. On the other hand, investors who were allotted shares in the public issue would have made gains of 6.84 per cent and exited the stock if they chose to book profits.

Why Pre-IPO Bets Can Lead To Losses

Buying unlisted shares can lead to investors ending up in a situation in which their pre-IPO purchase fails to reward them and instead triggers losses. Often, unlisted share prices are propelled by retail enthusiasm, which frequently decouples the stock price in the grey market from the underlying earnings and fair market multiples.

On the other hand, during the formal IPO book-building process, sophisticated institutional investors demand realistic pricing, which pulls the listing valuation back to reality. Once the stock lists, the inflated unlisted premium often disappears completely.

Combined with the mandatory six-month post-listing lock-in that prevents investors from cutting their losses, buyers can remain trapped in an underperforming investment. Therefore, acquiring unlisted NSE shares demands rigorous valuation scrutiny rather than blind participation in listing hype.