Many investors get confused between IPO shares vs. unlisted shares, and most of the time, wonder which investment has the greatest growth potential. Each of these investments has its own unique attributes, timeframes, and risks.
Investors who find it difficult to choose between IPO shares and Unlisted Shares will get answers to all their queries related to these two potential equities. This article helps them understand the growth potential, risk, and practicality associated with these shares.
Understanding IPO Shares vs. Unlisted Shares
What are IPO Shares?
IPO shares are part of the equity a company offers to the public for the first time once the business goes public by listing its shares on stock exchanges like NSE and BSE for the first time.
Key aspects of IPO shares are:
- Offered for the entire range of a price band
- Available to the public for only a short time
- Allocated and subsequently listed on stock exchanges
- Prices change post-listing as per the market demand.
IPO shares are monitored by both retail and institutional investors due to a public offering and regulatory scrutiny.
What Are Unlisted Shares?
Unlisted shares are the shares owned by a company that has not registered to sell its shares on a stock exchange. These companies have opted to keep their business private due to various reasons.
Key aspects of unlisted shares are:
- They are not traded on public exchanges.
- They are sold or transferred through direct, private market arrangements.
- There is less publicly available information on the company compared to listed companies.
- They often come with longer holding periods.
Many of the well-known companies like Pharmeasy, OYO, Zepto, etc. That we see today were unlisted for many years before they decided to go public.
IPO vs Unlisted Shares: Core Differences at a Glance
| Aspect | IPO Shares | Unlisted Shares |
| Company stage | Entering public markets | Private-stage |
| Price discovery | Market-driven post-listing | Based on private demand |
| Liquidity | High after listing | Limited |
| Information access | Extensive disclosures | Selective disclosures |
| Holding period | Short to long-term | Usually long-term |
| Visibility | Very high | Relatively low |
How IPO Shares Deliver Market Outcomes
Listing-Day Performance
IPO potential may be associated with listing-day activity (which in turn is affected by several short-term factors).
High subscription levels, less availability of shares, and market sentiments create strong demand for IPO shares when they are traded over different stock exchanges.
Some IPO shares come to the market at a premium price, but open near or even below the issue price. It all depends on what’s happening in the overall market and what investors expect when the company starts trading.
Post-Listing Price Movement
The growth from the IPO shares are determined by the company’s fundamental business in the long-run rather than short-term excitement after an initial listing. Also, things like revenue growth, earnings consistency, management execution , and sector outlook are vital.
IPO shares typically experience extensive price swings in the first few months of their listing as the market recalibrates valuations and resets at long term growth rates.
In the case of IPO shares , durability is the main contributing factor to performance.
How Unlisted Shares Deliver Market Outcomes
Early-Stage Price Discovery
Growth from unlisted are frequently related to early-stage price discovery. These shares are traded in a personal capacity between buyers and sellers.
These negotiations are the best example of private-market valuations. However, these negotiations are not based on the public market opinion of the company.
If investors get a chance to enter at this stage, they can go on the journey with the company as it grows and expands its operations and market share.
In the future, if a business decides to get listed, then there can be a significant chance for these early-stage investors to gain meaningful outcomes from these listings.
Benefit of the Extended Holding Period
Unlisted shares perform after a long gestation period. The growth are the performance of the business and how it has evolved, rather than price movements over the short term.
The important factors include operational scaling, improvement in profitability metrics, specific success of strategic initiatives, and key events (such as corporate reorganization or a possible listing).
In an unlisted share space, patience is the key because the value creation in this sector does not happen overnight.
IPO vs. Unlisted Shares: Which Shows Greater Potential for Growth?
There is no standard answer for it however, the latest trends indicate that:
IPO shares may provide investors with:
- Short-term volatility
- Greater liquidity
- Less information disparity
Unlisted shares may provide investors with:
- Access to entry at earlier stages of a business.
- Opportunities to reap the benefits of sustained value addition over the long run
- Significantly greater variance in outcomes
Unlisted shares are associated with higher growth potential, longer timelines, and greater uncertainty.
Risk Analysis: IPO Shares vs Unlisted Share
Risk Factors related to IPO Shares:
- Overvaluation risk at the time of issue
- Price volatility after listing
- Correction in the broader market
- Driven by short-term sentiment
Risk Factors related to Unlisted Shares:
- Reports on the company’s Financial status are very limited.
- Longer time to exit the investment
- Event risk dependency relative to the company
- Opacity of valuation
These risks need to be understood in order to meaningfully compare the potential growth.
Who is Eligible For IPO Shares?
Investors who want to:
- Have a preference for fewer visibility cycles.
- Appreciate market liquidity and transparency.
- Have confidence with regard to market fluctuations.
- Desire to risk investment with a newly listed company
Who is Eligible For Unlisted Shares?
Unlisted Shares are suitable for individuals who:
- Possess adequate knowledge of the private market.
- Open to a longer duration for investment retention.
- Possess a fundamental analysis concentration.
- Has a preference for earlier-stage company valuation.
Evaluating unlisted versus listed shares is a matter of approach and time horizon, not risk.
Common Misconceptions Regarding IPO and Unlisted Shares
IPO Shares Always Deliver Quick Gains
The common assumption is that IPO shares deliver growth from the very first day of their listing on the public exchanges.
This is not the case, as first-day listing performance is influenced significantly by the market environment, the valuation of the company, and investor sentiment.
Although some IPO shares might experience some price growth. However, many get stuck and show short-term volatility, making growth uncertain.
Unlisted Shares are Always Better than Listed Shares
It is widely assumed that unlisted shares deliver higher growth. But, this is not always true, and growth outcomes from both listed and unlisted shares are very unpredictable and vary significantly. Differences in growth are driven by business fundamentals of the company, governance of the company, execution of the business plan, and the long-term strategy of the company.
IPO vs Unlisted Shares: Conclusion
Considering an IPO in place of unlisted shares, it is not just about the higher possible growth, but about the:
- Timing
- Risk appetite
- Preference for liquidity
- Consumer knowledge
Both of these equities have their own pros and cons. IPO shares are more flexible, while unlisted shares give the owner early-stage entry. Both options offer potential Success, delayed growth, and higher risks than most other investments. If investors analyse the situation rationally, unlisted shares provide an early entry opportunity.
FAQ’S
Q1-What are the main differences between IPO vs. unlisted shares?
The main differences between IPO vs. unlisted shares are their respective Growth potential.
IPO shares are related to companies that are entering the public markets, while unlisted shares are related to private companies. Each has its own liquidity and financial information limitations.
Q2-Which Option Offers Higher Growth Potential IPO shares or Unlisted Shares?
The potential Higher Growth from unlisted shares depends on a number of factors, including the timing of the investment, the performance of the company, and the business in terms of the overall economic environment. IPO shares are more likely to appreciate in the short run, while unlisted shares are more likely to appreciate in the long run if the company successfully grows and ramps up its business.
Q3-Why are unlisted shares more predictable than shares than IPO?
The unlisted shares are likely to attract more investors as it involves companies that have greater business fundamentals. On the other hand, IPO shares are likely to attract investors who want to explore companies that have less predictable business fundamentals.
Q4-How should readers assess risk when comparing an IPO to unlisted shares?
Risk evaluation should center on fundamentals of a company, governance, sector, and time frame. All these are of prime importance. IPO shares come with risk in terms of market volatility, while unlisted shares offer low liquidity and access to information.
Q5-How can I explore Unlisted shares?
Investors who want to explore unlisted share markets can begin with ‘become our partner’. They can also explore our website, Delisted Stocks, where they will get verified updates and the latest insights regarding the unlisted share space.
Q5-What are SBI Mutual Fund Unlisted Shares?
SBI Mutual Fund is an entity that offers market exposure on the assets side of the management and is an important player in the development of the capital market. The organisation is providing opportunities to investors for an early entry to the mutual fund sector with its unlisted shares.
Disclaimer
This article is for informational purposes only and should not be considered investment advice. Prices and data of unlisted shares are based on publicly available sources and may vary. Investors are advised to conduct independent research or consult financial professionals before making investment decisions.
