Understanding Investment in Unlisted Stocks

Hi everyone, welcome to today's video. So recently I sold almost 70% of my holding on Zomato and a part of that money I have rotated into Swiggy. Why? Because Swiggy and Zomato are similar type of companies. I feel that valuation of Swiggy is much better compared to Zomato as of now. Now a natural question might be coming into your mind that hey how did I buy Swiggy because once you go on your Upstox, Zerodha, Grow account you don't see Swiggy. So how did I end up buying it? Can you do the same? The short answer is a yes. Should you be doing it? The answer is it depends. And for that, you need to watch this entire video. Please watch it carefully. This channel is for serious investors. It's not like a recommendation oriented investors. You have to understand these type of videos systematically. I'll try to explain the entire logic in very simple words. And the first key point that you need to understand is the difference between listed and unlisted companies. And why for some investors it makes sense to buy unlisted stocks. So for example if you consider Zomato, now if you go and open your Zerodha Grow account, you can easily buy Zomato, sell Zomato. Now this is a listed firm and how did it get to this point? Well it goes through different stages. For example when Zomato would have started, it would have started really small. So that stage is called a seed stage. this is stage one then after that it did something called a series a b c you have like a bunch of investors mostly vc venture capitalists who keep on pouring more and more money in a company like zomato and the size of the company keeps on growing and why would these companies or vc funds pour money into something like zomato because they are getting something called as equity equity equity of the stocks in this company right there's a bot any companies and this a paytm gay I'm a go list character that who are the VC investors in paytm right this is a small quiz for you guys similarly there are duniya vcs like Lightspeed ventures and whatnot and these type of companies go and invest in these type of startups and keep on growing the size of the company now at certain point in time this company becomes really really big and forget that fair game with a bring it to retail investors now retail investors for bring in coming in there is a process called as IPO Before IPO, there is something called as DRHP. DRHP is a prospectus like Zomato when it got listed in 2021, I think. So this DRHP is like a report on the entire functioning of Zomato, its previous financials, all that stuff. And this is prepared, then SEBI reviews it, and then finally it gives permission that okay, now Zomato can launch its IPO. And once the company IPOs, it becomes a publicly listed company. publicly listing means that you can go and buy these stocks as a retail investor okay and then they are listed on NSE BSE you buy and sell these stocks on everyday basis right so this is the journey just helping you understand through the chart and then i'll explain you what unlisted stocks are for example this journey that you're seeing here is the post IPO journey in fact here IPO happened okay after that it has become a public company right publicly listed company And you can buy and sell this stock at any point in time. Okay, so this was the entire thing. And I bought this stock somewhere here, right? I gave a complete analysis of this on my YouTube channel also, community also. And after that, right, I had made very good money, right? I mean, the stock has forexed. I have almost like made 150-160% gain. And I have sold almost 70% of this stock, right? Why? Because I feel that the valuations are a little bit expensive now, right? And there is a better opportunity in Swiggy, right? Now, what is what type of company is Swiggy? Well, it is an unlisted company. Now, why is it an unlisted company? And why am I saying that Swiggy's valuation is better than something like Zomato? I will tell you the reason for that. And the reason is that, for example, you need to know a little bit of history about Swiggy and Zomato. So when Swiggy was roughly a $5 billion startup, what was the size of Zomato? Well, the Zomato size was also close to $5 billion. Now guess in 2024. where is the story well Zomato's valuation is close to 23 billion dollars now what is Swiggy's valuation Swiggy right now in the unlisted platform is getting sold between 11 billion to 13 billion dollars so almost at half price Swiggy compared to Zomato now of course there are differences and many of you would comment you know what Zomato's you know fast delivery business is more than 10 minutes and all that stuff cool right but does that mean 50 percent valuation difference you have to really think So natural question comes that okay fine, you are right. then how do we buy a company like swiggy or are there other unlisted companies we can take a look at of course yes so this platform is called as incred money right and you can go read more about incred money right it's a part of incred group so you can go on the platform read about unlisted shares and you will see a bunch of companies for example oyo is there sbi mutual fund is there hdb financial services is there so many companies are there and if you open for example let's say hdb financial this is hdfc group company So you will see that, for example, you can see all these charts. Right now, what will you notice? When it was around the time of 2021, right? So this is 2021. The stock was trading here. Then it fell because the market itself was falling. And then it rose and it went up a lot. And what type of company is HDB Financial Services? Well, it is an unlisted company. Similarly, SBI Mutual Fund is what type of company? Again, it is an unlisted. What about Swiggy? Again, it is what type of company? Unlisted. It's okay. So, unlisted companies, what are the pros and cons of investing in these type of companies? Should you do it? Should you not do it? So, let me spend five, six minutes explaining it. So, on another note, I am doing a deep dive for my students on unlisted stocks. I am organizing this special class on Monday. It is going to be a live class in case you guys are interested on how to join it. You can check the links in the description and comment box. So, now very quick, explainer of unlisted companies. Unlisted companies go through this journey. For example, first seed stage is small, then it goes big, then they are somewhere between like an IPO and pre-IPO stage, right? IPO is done, so what will happen? It will become a public company. If IPO is not done, then it will remain like in a private space only, right? So this is or this range is where we are looking at. This is what we are defining as unlisted companies for me. Now unlisted is not a standard definition, right? But this is the scope. that I wanted to quickly explain. Some relevant examples would be HDB Financial, OYO and all these different types of companies. Now more importantly what you need to understand, before going into the pros and cons, around the regulation of these companies. Right, so it's not like any platform will launch and all that stuff. It's okay. So here is what you need to know. These companies are regulated by Ministry of Corporate Affairs. If you go to the website, you can get information. by paying certain fees to Ministry of Corporate Affairs, which is the government of India entity. And with that, you can get information about all these companies, whichever companies I'm speaking about or about to speak about in this video, you can get information about that company by putting in a little bit of money and you know, downloading those reports from there. So I hope the regulation part is also clear. It's not like we can do anything on it. Okay, so this is point one. Now talking about pros and cons of unlisted equities. So the first key point is that relatively in private markets right private markets unless a lot of vc money is floating around till that point the valuation on private or unlisted companies or valuation of it remains sensible for example if you go back to the time of 2018 2019 just before covid by juice and bunch of other unlisted players so to say what was their situation? they were getting money on any valuation and what not and valuation was crazy. Why? Because easy money was flowing in. Interest rates were very, very low. Right now, what is the issue? Well, it is very hard for these companies to survive. So many unicorns, in fact, Baiju's was more valuable than Zomato at one point in time. It got crushed. Why? Because free money evaporated from the market. That VC money evaporated from the market. So in a high interest rate environment, typically speaking, valuation of unlisted stocks is more sensible. I told you about Swiggy and Zomato. from the story and therefore I feel that unlisted stock is in a good shape from that perspective. This is point one. So right now valuation is cheap from that perspective. Second key point is that see there is always a market premium that gets added to unlisted stocks whenever they IPO. Let's say go back to the time when LIC IPO was going to come. There was so much noise in the market about LIC IPO. LIC IPO didn't happen. I don't know what happened. So yeah. So that is called as adding of market premium. That people will talk so much that you know, that stock you feel that oh, I don't know what is going to happen in this stock. So this is called as market premium. In the world, every reporter will cover it, every magazine will cover it, every YouTuber will cover it and all that stuff. So at that time, market premium starts to add. So if you buy in the unlisted space first, you sit down comfortably, right? And then let people talk and after that you sell it. Okay, so then you have gotten this market premium by investing in that asset. Third is certainty of procurement or certainty of allocation. Now, what is the meaning of this? For example, if now you might be thinking, yeah, you know what, why should I invest my money in Swiggy now? Right? Or why should I buy HDB Financial now or SBI Mutual Fund now? I can buy it. IPO announce hota hai. But bhai, IPO aapko milega, nahi milega? Is that certainty? The answer is no. Okay, so these are three advantages. If you invest in an unlisted company, what is the risk? Very quickly, again, there can be valuation risk. For example, if you go and buy something like HDB Financial. Okay, now what if the valuation is high? Right. So how would you figure it out? So you have to study the stock properly. Now there is not much public information about HDB Financial. The level of public information on a listed company is much more. So. So you're dealing with that uncertainty. Now again, I will cover how to value these privately listed companies, what type of structures you can use, etc. On my class that I'm doing so you can check the links. But anyways, I'll take you to the platform also and at least point you in the right direction where you can look at. Second key point and this is a problem which is called a lock in problem. Right. So lock in problem. For example, if you go and buy HDB financial here and now the company does not announce the IPO for two years, okay, so now it will be difficult for you to liquidate that stock. You can only liquidate it to other private investors. The equity can get sold. That's not a problem even in private space. But that liquidity problem remains because it is not a listed asset. You can buy Zomato anytime. But if you buy Swiggy today, you might not be able to liquidate it tomorrow. Your best opportunity to liquidate will be after IPO. But there is a point here. The point is that as per the rules, Because you are buying an unlisted company, you can't liquidate it for the next six months after it IPOs. Why? Because you are technically an insider. Right. Very similar to a founder of the company. Now you think yourself that as soon as it is an IPO, it will be sold in the next day. Right. So now for listing gains. Now that is. problematic process right why because the founder is the insider similarly employees are insider and you are also buying that company in somewhat a preliminary stage so therefore that restriction applies to you also key for six months you will not be able to liquidate then comes the final point is the liquidity risk so liquidity risk for example and for the next two years the company does not IPO so you do a liquidity risk right then a natural question comes here I was hoping to buy like here and then sell it here. Now think about it, Zomato got listed at 125 and then the price fell. Right. So it fell here and then it increased. So anyways, whatever stocks you are purchasing, if you are investing in the equity segment, at least take a perspective of 2-3 years. So this is a simple point, but this depends on how you are managing your portfolio, how you think about investing. So this is a point. But if you want to do more study and understand how to invest, then very simple go here, right on unlisted shares, you will see all these different options. click on anything right for example sbi uh fund management limited stock at that 2278 car so if you want to buy 50 units you can place the order you can just simply press invest now right you have to log in first right so again talking about the safety of the platform i have prepared a note which i will link in the description and comment box you guys can go and read more about it before making a call whether you should be investing not investing right. So there is a special offer that in-credit money has launched and it will only be applicable for the first 1000 users who will transact. There is an additional 0.25% discount that you will get on any purchase that you're making. So definitely it adds up and to avail that you can check out my link in the description and comment box and buy via that link. So just to summarize the entire video should retail investors invest in unlisted stocks? Yes and no. It depends on your portfolio, how you are constructing it. It is definitely beneficial because market premium gets added, all that stuff, valuation etc. is fine. There is definitely risk. There is risk also. A small tip that I will give here is that see, the biggest risk in unlisted space is the Liquidity risk, right? And here if you buy a good brand and even if they are not IPOing, you can still sell these type of companies even in private market. Yes, it may not be a transaction immediately, but you will be able to liquidate your position. So remember to buy good brands in this unlisted space, which are profitable companies, good companies. If you're buying that, then the chances of IPOing is also very high and the chances of you making money is also very high. I hope you enjoyed this brief conversation. If you did, do press the like button and subscribe to the channel and I'll see you soon.

I feel that valuation of Swiggy is much better compared to Zomato as of now. Now a natural question might be coming into your mind that hey how did I buy Swiggy because once you go on your Upstox, Zerodha, Grow account you don't see Swiggy. So how did I end up buying it?

Can you do the same? The short answer is a yes. Should you be doing it? The answer is it depends. And for that, you need to watch this entire video.

Please watch it carefully. This channel is for serious investors. It's not like a recommendation oriented investors.

You have to understand these type of videos systematically. I'll try to explain the entire logic in very simple words. And the first key point that you need to understand is the difference between listed and unlisted companies. And why for some investors it makes sense to buy unlisted stocks. So for example if you consider Zomato, now if you go and open your Zerodha Grow account, you can easily buy Zomato, sell Zomato.

Now this is a listed firm and how did it get to this point? Well it goes through different stages. For example when Zomato would have started, it would have started really small.

So that stage is called a seed stage. this is stage one then after that it did something called a series a b c you have like a bunch of investors mostly vc venture capitalists who keep on pouring more and more money in a company like zomato and the size of the company keeps on growing and why would these companies or vc funds pour money into something like zomato because they are getting something called as equity equity equity of the stocks in this company right there's a bot any companies and this a paytm gay I'm a go list character that who are the VC investors in paytm right this is a small quiz for you guys similarly there are duniya vcs like Lightspeed ventures and whatnot and these type of companies go and invest in these type of startups and keep on growing the size of the company now at certain point in time this company becomes really really big and forget that fair game with a bring it to retail investors now retail investors for bring in coming in there is a process called as IPO Before IPO, there is something called as DRHP. DRHP is a prospectus like Zomato when it got listed in 2021, I think.

So this DRHP is like a report on the entire functioning of Zomato, its previous financials, all that stuff. And this is prepared, then SEBI reviews it, and then finally it gives permission that okay, now Zomato can launch its IPO. And once the company IPOs, it becomes a publicly listed company.

publicly listing means that you can go and buy these stocks as a retail investor okay and then they are listed on NSE BSE you buy and sell these stocks on everyday basis right so this is the journey just helping you understand through the chart and then i'll explain you what unlisted stocks are for example this journey that you're seeing here is the post IPO journey in fact here IPO happened okay after that it has become a public company right publicly listed company And you can buy and sell this stock at any point in time. Okay, so this was the entire thing. And I bought this stock somewhere here, right?

I gave a complete analysis of this on my YouTube channel also, community also. And after that, right, I had made very good money, right? I mean, the stock has forexed. I have almost like made 150-160% gain. And I have sold almost 70% of this stock, right?

Why? Because I feel that the valuations are a little bit expensive now, right? And there is a better opportunity in Swiggy, right? Now, what is what type of company is Swiggy? Well, it is an unlisted company.

Now, why is it an unlisted company? And why am I saying that Swiggy's valuation is better than something like Zomato? I will tell you the reason for that.

And the reason is that, for example, you need to know a little bit of history about Swiggy and Zomato. So when Swiggy was roughly a $5 billion startup, what was the size of Zomato? Well, the Zomato size was also close to $5 billion. Now guess in 2024. where is the story well Zomato's valuation is close to 23 billion dollars now what is Swiggy's valuation Swiggy right now in the unlisted platform is getting sold between 11 billion to 13 billion dollars so almost at half price Swiggy compared to Zomato now of course there are differences and many of you would comment you know what Zomato's you know fast delivery business is more than 10 minutes and all that stuff cool right but does that mean 50 percent valuation difference you have to really think So natural question comes that okay fine, you are right. then how do we buy a company like swiggy or are there other unlisted companies we can take a look at of course yes so this platform is called as incred money right and you can go read more about incred money right it's a part of incred group so you can go on the platform read about unlisted shares and you will see a bunch of companies for example oyo is there sbi mutual fund is there hdb financial services is there so many companies are there and if you open for example let's say hdb financial this is hdfc group company So you will see that, for example, you can see all these charts.

Right now, what will you notice? When it was around the time of 2021, right? So this is 2021. The stock was trading here. Then it fell because the market itself was falling.

And then it rose and it went up a lot. And what type of company is HDB Financial Services? Well, it is an unlisted company.

Similarly, SBI Mutual Fund is what type of company? Again, it is an unlisted. What about Swiggy? Again, it is what type of company?

Unlisted. It's okay. So, unlisted companies, what are the pros and cons of investing in these type of companies?

Should you do it? Should you not do it? So, let me spend five, six minutes explaining it. So, on another note, I am doing a deep dive for my students on unlisted stocks.

I am organizing this special class on Monday. It is going to be a live class in case you guys are interested on how to join it. You can check the links in the description and comment box. So, now very quick, explainer of unlisted companies.

Unlisted companies go through this journey. For example, first seed stage is small, then it goes big, then they are somewhere between like an IPO and pre-IPO stage, right? IPO is done, so what will happen? It will become a public company. If IPO is not done, then it will remain like in a private space only, right?

So this is or this range is where we are looking at. This is what we are defining as unlisted companies for me. Now unlisted is not a standard definition, right?

But this is the scope. that I wanted to quickly explain. Some relevant examples would be HDB Financial, OYO and all these different types of companies.

Now more importantly what you need to understand, before going into the pros and cons, around the regulation of these companies. Right, so it's not like any platform will launch and all that stuff. It's okay. So here is what you need to know.

These companies are regulated by Ministry of Corporate Affairs. If you go to the website, you can get information. by paying certain fees to Ministry of Corporate Affairs, which is the government of India entity. And with that, you can get information about all these companies, whichever companies I'm speaking about or about to speak about in this video, you can get information about that company by putting in a little bit of money and you know, downloading those reports from there. So I hope the regulation part is also clear.

It's not like we can do anything on it. Okay, so this is point one. Now talking about pros and cons of unlisted equities.

So the first key point is that relatively in private markets right private markets unless a lot of vc money is floating around till that point the valuation on private or unlisted companies or valuation of it remains sensible for example if you go back to the time of 2018 2019 just before covid by juice and bunch of other unlisted players so to say what was their situation? they were getting money on any valuation and what not and valuation was crazy. Why? Because easy money was flowing in. Interest rates were very, very low.

Right now, what is the issue? Well, it is very hard for these companies to survive. So many unicorns, in fact, Baiju's was more valuable than Zomato at one point in time.

It got crushed. Why? Because free money evaporated from the market.

That VC money evaporated from the market. So in a high interest rate environment, typically speaking, valuation of unlisted stocks is more sensible. I told you about Swiggy and Zomato.

from the story and therefore I feel that unlisted stock is in a good shape from that perspective. This is point one. So right now valuation is cheap from that perspective. Second key point is that see there is always a market premium that gets added to unlisted stocks whenever they IPO.

Let's say go back to the time when LIC IPO was going to come. There was so much noise in the market about LIC IPO. LIC IPO didn't happen. I don't know what happened.

So yeah. So that is called as adding of market premium. That people will talk so much that you know, that stock you feel that oh, I don't know what is going to happen in this stock. So this is called as market premium. In the world, every reporter will cover it, every magazine will cover it, every YouTuber will cover it and all that stuff.

So at that time, market premium starts to add. So if you buy in the unlisted space first, you sit down comfortably, right? And then let people talk and after that you sell it.

Okay, so then you have gotten this market premium by investing in that asset. Third is certainty of procurement or certainty of allocation. Now, what is the meaning of this? For example, if now you might be thinking, yeah, you know what, why should I invest my money in Swiggy now?

Right? Or why should I buy HDB Financial now or SBI Mutual Fund now? I can buy it. IPO announce hota hai.

But bhai, IPO aapko milega, nahi milega? Is that certainty? The answer is no.

Okay, so these are three advantages. If you invest in an unlisted company, what is the risk? Very quickly, again, there can be valuation risk. For example, if you go and buy something like HDB Financial.

Okay, now what if the valuation is high? Right. So how would you figure it out?

So you have to study the stock properly. Now there is not much public information about HDB Financial. The level of public information on a listed company is much more. So.

So you're dealing with that uncertainty. Now again, I will cover how to value these privately listed companies, what type of structures you can use, etc. On my class that I'm doing so you can check the links.

But anyways, I'll take you to the platform also and at least point you in the right direction where you can look at. Second key point and this is a problem which is called a lock in problem. Right. So lock in problem. For example, if you go and buy HDB financial here and now the company does not announce the IPO for two years, okay, so now it will be difficult for you to liquidate that stock.

You can only liquidate it to other private investors. The equity can get sold. That's not a problem even in private space. But that liquidity problem remains because it is not a listed asset. You can buy Zomato anytime.

But if you buy Swiggy today, you might not be able to liquidate it tomorrow. Your best opportunity to liquidate will be after IPO. But there is a point here. The point is that as per the rules, Because you are buying an unlisted company, you can't liquidate it for the next six months after it IPOs.

Why? Because you are technically an insider. Right.

Very similar to a founder of the company. Now you think yourself that as soon as it is an IPO, it will be sold in the next day. Right. So now for listing gains.

Now that is. problematic process right why because the founder is the insider similarly employees are insider and you are also buying that company in somewhat a preliminary stage so therefore that restriction applies to you also key for six months you will not be able to liquidate then comes the final point is the liquidity risk so liquidity risk for example and for the next two years the company does not IPO so you do a liquidity risk right then a natural question comes here I was hoping to buy like here and then sell it here. Now think about it, Zomato got listed at 125 and then the price fell. Right. So it fell here and then it increased.

So anyways, whatever stocks you are purchasing, if you are investing in the equity segment, at least take a perspective of 2-3 years. So this is a simple point, but this depends on how you are managing your portfolio, how you think about investing. So this is a point. But if you want to do more study and understand how to invest, then very simple go here, right on unlisted shares, you will see all these different options. click on anything right for example sbi uh fund management limited stock at that 2278 car so if you want to buy 50 units you can place the order you can just simply press invest now right you have to log in first right so again talking about the safety of the platform i have prepared a note which i will link in the description and comment box you guys can go and read more about it before making a call whether you should be investing not investing right.

So there is a special offer that in-credit money has launched and it will only be applicable for the first 1000 users who will transact. There is an additional 0.25% discount that you will get on any purchase that you're making. So definitely it adds up and to avail that you can check out my link in the description and comment box and buy via that link.

So just to summarize the entire video should retail investors invest in unlisted stocks? Yes and no. It depends on your portfolio, how you are constructing it.

It is definitely beneficial because market premium gets added, all that stuff, valuation etc. is fine. There is definitely risk. There is risk also.

A small tip that I will give here is that see, the biggest risk in unlisted space is the Liquidity risk, right? And here if you buy a good brand and even if they are not IPOing, you can still sell these type of companies even in private market. Yes, it may not be a transaction immediately, but you will be able to liquidate your position. So remember to buy good brands in this unlisted space, which are profitable companies, good companies.

If you're buying that, then the chances of IPOing is also very high and the chances of you making money is also very high. I hope you enjoyed this brief conversation. If you did, do press the like button and subscribe to the channel and I'll see you soon.

Transcript for:Understanding Investment in Unlisted Stocks

Transcript for:
Understanding Investment in Unlisted Stocks