How to Buy Unlisted Shares in India - A Definitive Guide

Investing in unlisted shares can be a profitable venture for investors looking to diversify their portfolios and tap into unique opportunities that are often not available through public markets. The unlisted shares market has gained a lot of attention in the past few years due to positive gains and can be an alluring venture for both novice and seasoned investors. While the spotlight often shines on listed stocks, unlisted shares which also include pre-IPO shares, offer substantial growth potential. Previously Swiggy and Waaree Energies and currently Tata Capital, Vikram Solar, NSE India, SBI Funds Management, Hexaware, and Nayara Energy are the best-performing stocks in the unlisted marketplace.

What is an Unlisted Marketplace and What Advantages Does It Offer?

Unlisted shares refer to equity securities of companies that are not traded on public exchanges like the Bombay Stock Exchange or the National Stock Exchange. These shares are typically associated with private companies, startups, or small enterprises, providing investors with numerous benefits. 

Unlisted shares often come at a lower valuation, and might deliver higher returns if the company performs well, especially innovative and promising startups. Many startups and businesses remain private for extended periods, limiting investments to a select group of investors, allowing them to exclusively invest in high-potential companies. With diversified investments in unlisted shares, investors can reduce overall portfolio risk, balancing potential losses in listed shares with gains in the private market.

Why is the Unlisted Market Considered Better Than the Listed Market?

• Krishna Patwari, Founder and Managing Director of Wealth Wisdom India Pvt. Ltd. (www.wwipl.com), outlines the significant benefits of investing in an unlisted market as compared to the listed market.
• Early investments in successful startups can yield exponentially higher returns compared to investing in already-established companies, which may experience slower growth.
• The unlisted market is generally less susceptible to market fluctuations as they do not have daily trading prices. 
• Investing in unlisted shares in India often gives investors access to exclusive opportunities that are unavailable in the public domain, allowing them to capitalize on investment opportunities ahead of the competition.
  
   

To buy unlisted shares of NSE India, Tata Capital, OYO, etc. one can choose to register with online trading platforms like Wealth Wisdom India Pvt. Ltd. Krishna Patwari explains the buying process in a few easy steps.

1. Open a Demat account and complete the entire KYC process.
2. Ensure compliance with regulations surrounding the purchase of unlisted shares
3. After account verification, place an order to buy NSE India, Tata Capital, or OYO shares as per the preference and individual requirements.
4. Transfer the required funds to complete the transaction.
5. Once the transaction is successful, the shares will be credited to your Demat account.

What are the Risks Involved in Investing in Unlisted Shares?

• Ensure that the preferred company adheres to all the regulatory requirements and has the necessary approvals from relevant authorities.
• Assess the company’s valuation carefully as unlisted shares may not have a readily available market price, so consider using financial metrics and comparisons with similar companies.
• Unlisted shares are often suitable for long-term investments due to their illiquidity so returns may take longer time as compared to the listed market.
• Be aware of specific legal requirements and tax implications associated with investing in unlisted shares.
• It may be beneficial to consult with a financial advisor or an expert for maximum benefits and to prevent risks.

While the potential for returns is higher, one must also consider the risks associated with dealing in unlisted shares. As with any investment, it's important to proceed cautiously, informed by both market trends and the specific characteristics of the company you are considering. With the right knowledge and approach, buying unlisted shares in NSE, Tata Capital, OYO, etc., among other high-performing unlisted shares can be a rewarding aspect of investment strategy in India.

• Investors in unlisted companies often have greater influence and control compared to shareholders in listed companies.
• Investors who are patient and willing to hold their investments over the long term can benefit significantly when these companies successfully execute their growth strategies or achieve an IPO. 
• Long-term capital gains on listed and unlisted shares are taxed at 12.5%.
  
  
  What is the Procedure to Buy Unlisted Shares in India?
• Research Well: Start with shortlisting companies to identify promising start-ups or private companies that are willing to sell unlisted shares to private investors. 
• Due Diligence: Investors must conduct comprehensive research on the preferred company, examining its financial health, business strategy, management team, and potential for growth. 
• Negotiate: This process typically covers negotiating aspects such as the price, the quantity of shares being acquired, and the specific conditions of the sale.
• Documentation and Transfer: It's important to ensure that all required KYC documentation, share purchase agreements, and transfer deeds are executed correctly between the buyer and the seller. It’s recommended to involve legal experts or financial advisors to facilitate the transaction smoothly.
  
  
  Top Unlisted Shares in India
• National Stock Exchange of India: The National Stock Exchange of India, established in 1992 is one of the leading stock exchanges in India and the fourth largest in the world by equity trading volume in 2015. NSE India, with a market capitalization value of Rs. 457,875 crore and was traded at Rs. 1,850 as on November 8, 2024. For its latest bonus issue of 4:1 shares, the NSE set a record date of November 2. The shares last traded for Rs 1900 each in off-market transactions. With an impressive M-cap of over $5.6 billion (about Rs 4.75 lakh crore), it is among the top 10 most valuable firms in India.
• Tata Capital: Tata Capital Limited is a subsidiary of Tata Sons Private Limited and is registered with the Reserve Bank of India as a systemically important non-deposit-accepting Core Investment Company. TCL has a market capitalization value of Rs. 335,126.42 and was traded at Rs. 905 as of November 8, 2024. In the first half of this year, Tata Capital's unlisted shares have increased by more than 46% on the grey market, causing its market capitalization to soar from approximately $33 billion to $48 billion.
• OYO: One of the fastest-growing hotel chains with 80 global locations, is preparing for an INR 8430 crore IPO, as per its DRHP submitted to SEBI. The IPO includes a new INR 7000 crore stock offering to reduce debt and expand in India, Indonesia, and Europe. OYO has recorded its market valuation at Rs. 36,378.91 Crore and was traded at Rs. 55 as of November 8, 2024.