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Understanding Investment in Unlisted Stocks

Aug 9, 2024

Lecture Notes: Investing in Unlisted Stocks

Introduction

  • Recent personal investment decision: sold 70% of Zomato holdings, invested in Swiggy.
  • Rationale: Swiggy's valuation is better than Zomato.
  • Overview of the video: Explaining differences between listed and unlisted companies.

Key Concepts

Listed vs. Unlisted Companies

  • Listed Companies:

    • Can be easily bought/sold on platforms like Zerodha or Upstox.
    • Example: Zomato, which went public through an IPO process after several funding rounds.

  • Unlisted Companies:

    • Not available on retail trading platforms.
    • Example: Swiggy, which is currently unlisted.

Stages of Company Growth

  1. Seed Stage: Small beginnings.
  2. Series A, B, C: Funding rounds from venture capitalists (VCs) increase company size.
  3. IPO Stage: Company transitions to public, allowing retail investors to buy shares.

Initial Public Offering (IPO)

  • IPO process includes submitting a Draft Red Herring Prospectus (DRHP), which outlines company details.
  • SEBI reviews and approves the IPO launch.

Comparing Valuations: Zomato vs. Swiggy

  • Zomato's Growth: Valued at $23 billion in 2024.
  • Swiggy's Status: Valued between $11 billion to $13 billion (almost half of Zomato).

Buying Unlisted Stocks

  • Platform for Buying: Incred Money for unlisted shares.
  • Examples of unlisted companies available: OYO, HDB Financial Services, SBI Mutual Fund.

Pros and Cons of Investing in Unlisted Stocks

Pros

  1. Sensible Valuations: Typically more rational valuations in high-interest rate environments.
  2. Market Premium: Potential for price increase when the company goes public.
  3. Certainty of Procurement: Unlisted shares may be more accessible than IPO shares.

Cons

  1. Valuation Risk: Less public information can lead to investment in overvalued companies.
  2. Lock-In Problem: Buyers may have to wait to sell after an IPO (usually 6 months).
  3. Liquidity Risk: Difficulty in selling shares if the company does not go public soon.

Key Considerations for Investors

  • Investing in unlisted stocks requires a long-term perspective (2-3 years).
  • Focus on reputable companies to minimize liquidity risk.
  • Importance of conducting thorough research before investing in unlisted equities.

Conclusion

  • Unlisted stocks can provide good investment opportunities if approached correctly.
  • Risks associated with liquidity and valuations must be understood.
  • For more insights, participants can join the special class on unlisted stocks.

Additional Resources

  • Links to Incred Money and safety notes will be provided in the description.
  • Special discount for first 1000 users on transactions.

Full transcript