Unlisted market faces reality check as major IPOs price below grey market levels

Mumbai: The market for unlisted shares, long seen as a sure bet, is facing a reality check. In recent months, marquee names such as Tata Capital and HDB Financial Services have set initial public offering (IPO) price bands significantly below their unlisted market levels, denting investor sentiment and forcing a rethink on how companies are valued in this unregulated space.

These instances have dried up the demand for even some of the most popular unlisted companies, while their shares have mostly edged lower in recent times. This marks a sharp reversal from a few months ago, when investors were scooping up these shares on platforms that specialise in gray markets stocks, despite concerns about the market being overheated.

Among the popular names in the space are National Stock Exchange (NSE), Groww, SBI Asset Management and Cochin International Airport Ltd (CIAL). NSE-the hot favourite-is down nearly 5% in the past month, with speculation about a regulatory clampdown on weekly equity derivatives contributing to the soured mood. SBI Mutual Fund is down 2% in the past month, while shares of the IPO-bound broking firm Groww are down 12% in the past two days since Tata Capital announced its price band.

Tata Capital, the financial services arm of Tata group, announced its price band at ₹310-326 per share. It came at a discount of nearly 56% to the ₹735 levels at which the stock was trading in the unlisted market.

Similarly, HDB Financial, another listing from the HDFC Group stable, had earlier taken a similar approach, fixing its IPO band at around 40% lower than its prevailing unlisted price. The IPO price band for HDB Financial Services was fixed at ₹700-740, while the shares were trading at ₹1,225 in the unlisted market. “The lower pricing of IPOs will have a lasting effect on the minds of investors and intermediaries in the unlisted market,” said Vaqarjaved Khan, senior analyst, Angel One. “Investors will be less speculative in the unlisted market, and pricing will be more realistic.”

National Securities Depository (NSDL) announced its IPO price band at ₹760-800, a substantial 22% discount to its last traded price of ₹1,025 in the unlisted market.The contrast between unlisted prices and IPO bands has cast doubt on the sustainability of such premiums. Investors in the unlisted market are clearly disappointed with Tata Capital’s IPO pricing, said Ankit Garg, CEO, Wealthy Nivesh PMS.”Many had been expecting a price closer to the levels at which its shares have been trading privately, and the announced band comes in significantly below that,” he said. “This has left some unlisted shareholders questioning the premium they paid in the past and weighing the impact on their potential returns. This along with the HDB listing has ensured that a lot of hype built in the unlisted market, which was not justified by valuations, is taken care of.”

Analysts said the divergence could dent the dynamics of pre-IPO investing.