For companies aiming to go public, 2021 may even be better than 2020. Sixteen firms have already filed their draft red herring prospectus (DRHP) detailing the company's operations, financial position, reasons for seeking money, and how it will use it, less than halfway through 2021.
As various companies are planning their public listings, many investors have started buying unlisted shares of pre-IPO companies. Buying equities in the grey market — the unlisted market for unlisted shares — comes with risks, but it can also be profitable for investors, according to market analysts.
Pre-IPO companies typically have a proven revenue model and are in the process of raising more funding from the market via a public listing. Financial experts say that investing in a company that is about to roll out its IPO (initial public offering) can help an investor participate in the growth of a company, but such investments should only be made by aggressive traders as it includes risk.
Meanwhile, experts say that the prices of stocks in the grey market are often less volatile than in the stock market itself. Besides, buying stocks in the grey market is no more a luxury limited to big companies/investors. These days individual investors also have access to the grey market.
Here is how to buy unlisted shares:
Intermediaries and platforms buy shares of pre-IPO companies from the employees who own shares (ESOP) and the existing investors of the respective company and offer them to new investors. Unlisted shares can be bought in demat account and it is an off-market transaction between the buyer and seller. Hence, it is crucial to buy such stocks from trustworthy intermediaries/platforms.
Unlisted stock investment is a high-risk investment that can yield much larger returns because early investors profit the most before the company is listed on the stock exchange.
As of July 14, a total of 12 companies have already rolled out their IPOs in 2021 and several more are planning for public listing. The most awaited IPOs include — Zomato, Go Airlines, CarTrade, Sona Comstar, Nuvoco Vistas, and Aptus Value Housing, among others.
First Published: IST