Why are investors who entered the unlisted market in the last 1 year only losing money?

People thought that the unlisted market was a place to buy cheap stocks that could later be sold at higher prices in IPO after the 6-month lock-in period. But in the last 1 year, things have been going the other way. Investors who bought unlisted shares in FY21-22 are losing a lot of money because most IPOs are priced lower than expected or shares in the unlisted market were available at very high valuations.

Few Examples:

1. Five Star Business- This unlisted share traded in the unlisted market for between Rs. 200 to Rs. 750 (after split), while the IPO price was Rs. 475 per share. Investors who bought shares above Rs. 500 are already looking at losses from the initial public offering. 2. AGS transact - This unlisted share traded in the unlisted market for between Rs. 200 to Rs. 550, while the IPO price was Rs.175 per share, and currently, the share is available at Rs.80 per share. Investors who bought shares above Rs. 200 were at loss at the time of the initial public offering. 3. Pharmeasy- This share was in high demand last year when the market was at boom. The share price was trading above Rs.120 per share. But after a fall in the market, the current market price is Rs.35 per share and the IPO is also delayed for the next 1 or 2 years. 4. Studds - This unlisted share was in high demand last year and was traded above Rs.2000 per share and currently, the share is available at Rs.950 per share. The share value has already eroded by 50%. 5. HDB - This unlisted share was in high demand 2 years back i.e. before Covid-19 and was traded above Rs.1200 per share and currently, the share is available at Rs.650 per share. The share value has already eroded by 50%. The aforementioned scripts, together with a large number of other scripts, can be found on the unlisted market, where investors who have invested in the past year have suffered a substantial loss.

Now the question is what is the reason for the same?

The simple rule of making money in the market is to invest in Bear Market i.e. when nobody is buying and selling in Bull Market when everybody is buying. Or Invest in Bull Market and Exit in Bull Market. Don’t wait for Bear Market to sell. In the last 1 year, the investors who bought shares in fancy and high valuations and were unable to exit, are suffering losses. Currently, all the IPOs which are coming are not getting proper responses from the investors and they have to considerably reduce their valuations to complete their IPOs. So, making money is difficult. If you read the unlisted market carefully, during the period around Fy19-20, many unlisted scripts were available at very decent valuations. However, there was hardly any demand for unlisted shares at that time.

For example:

CSK was available at around Rs.50 per share, Fino-Paytech was available at Rs.120 per share, lava was available at Rs.50 per share (adjusting split and bonus), Care Health was available at Rs.80 per share, Nazara tech was available at Rs.300 per share (adjusting bonus), Reliance Retail was available at Rs.800 per share, Tata Tech was available at Rs.1500 per share, Studds was available at Rs.800 per share, etc. The above scripts at that time were available at very good valuations but as demand was less nobody was buying. However, those who invested made a lot of money by selling them in Fy 21-22 when the bull market or demand was at its peak. Below are the prices of some unlisted scripts which peaked in the Fy21-22. CSK peak price = Rs.250 per share Fino-Paytech = Rs.450 per share Lava = Rs. 250 per share Care Health = Rs.250 per share Nazara Tech = Rs.1500 per share Reliance Retail = Rs.4000 per share Tata Tech = Rs.6000 per share Studds = Rs.2000 per share However, one year ago, investors who purchased at the aforementioned prices are now facing losses. They entered the market when demand was high and the bull market was at its peak. The market then undergoes a severe correction, and many unlisted scripts loose more than 50% of their value, as does the portfolio worth of clients.

Is it the right time to come to an unlisted market to buy again?

Currently, checking the unlisted market reveals that there is no demand coming from investors with brokers in the unlisted market. Investors have no interest in purchasing. In many scripts, prices have already decreased by more than 50%, and additional declines cannot be ruled out. However, still investors are not buying. Those who are well informed and shares where valuation again becomes attractive, those investors have started to accumulate again in smaller lots. UnlistedZone believes that some scripts' valuations are becoming favourable now in the unlisted market and most probably all good scripts' values will become attractive again within the next three to six months. Those that buy now will profit when the bull market returns within the next two to three years.