Investing Insights on Unlisted Stocks

Aug 10, 2024

Lecture Notes: Investing in Unlisted Stocks

Introduction

  • Sold 70% of holdings in Zomato and invested in Swiggy.
  • Swiggy offers better valuation than Zomato.
  • Aim: Explain the process of investing in unlisted stocks.

Key Concepts

Listed vs. Unlisted Companies

  • Listed Companies: Shares available on stock exchanges (e.g., Zomato).
  • Unlisted Companies: Not publicly traded (e.g., Swiggy).
  • Importance of understanding both types for investment decisions.

Investment Stages of Companies

  1. Seed Stage: Initial stage of growth.
  2. Series A, B, C: Funding rounds with venture capitalists (VCs) investing in the company.
  3. IPO (Initial Public Offering): Transition from private to public, allowing retail investors to buy shares.
  4. DRHP (Draft Red Herring Prospectus): Document detailing company’s financials and operations before IPO.

Example: Zomato's Journey

  • Zomato’s valuation journey from a startup to a publicly listed company.
  • Gained 150-160% returns before selling shares due to high valuations.

Analysis of Swiggy

  • Current valuation of Swiggy between $11 billion to $13 billion, compared to Zomato's $23 billion.
  • Swiggy remains an unlisted company, which presents different investment opportunities.

How to Invest in Unlisted Stocks

  • Platforms available: InCred Money.
  • Other examples of unlisted companies: Oyo, HDB Financial Services, SBI Mutual Fund.
  • Importance of researching and understanding these companies before investing.

Pros and Cons of Unlisted Stocks

Pros:

  1. Valuation: Often more sensible compared to high valuations of listed stocks.
  2. Market Premium: Unlisted stocks may see a premium once they go public.
  3. Certainty of Allocation: Allows for securing shares before IPO.

Cons:

  1. Valuation Risk: Unlisted stocks lack public information, making valuation challenging.
  2. Lock-in Period: Cannot liquidate shares for six months after IPO due to insider rules.
  3. Liquidity Risk: Harder to sell shares compared to listed stocks.

Regulatory Oversight

  • Unlisted companies are regulated by the Ministry of Corporate Affairs in India.
  • Investors can access information by paying fees to obtain company reports.

Conclusion

  • Retail investors can invest in unlisted stocks, but the decision should depend on individual portfolio strategies.
  • Emphasis on investing in reputable companies to mitigate risks.

Additional Information

  • Special class on Unlisted Stocks being organized.
  • Links in the description for further reading and offer details.
  • Importance of understanding the dynamics before making investment decisions.