Withdrawal of start-up IPOs take wind out of sails of unlisted market

Share prices, trading activity slump amid rising uncertainty for startup listings

The shelving of listing plans by well-known startups such as wearables brand Boat, online pharmacy PharmEasy, online automobile marketplace Droom Technology, has taken the wind out of the sails from the market for dealing in unlisted shares.

The volumes in the unlisted market have declined by 50-70 per cent along with heavy correction in the prices compared to a year ago level.

Prices in the unlisted market have taken a sharp beating with PharmEasy and Boat dropping their IPO plans, said people dealing in the segment. For others still in the pipeline like Ixigo and Oyo (Oravel Stays), the prices in the pre-IPO market have eroded over 50 per cent, according to data shared by Unlisted Arena.

A popular trade for savvy investors was to accumulate shares of IPO-bound companies. Until last year, listing valuations were far greater than the last fund raise for many startups. As a result, buying shares from the unlisted market and selling post-IPO was a profitable trade for many wealthy investors.

“Investors have now taken a cautious stance in loss-making companies. The emphasis is now shifting to companies with good parentage and profitable businesses. Many new-age firms have postponed their IPO plans and are looking to break even before approaching the capital markets and rejuvenating investor confidence,” said Abhay Doshi, founder, Unlisted Arena.

Many high-networth investors (HNIs), who had purchased shares in pre-IPO expecting to sell them at higher prices after six-month lock-in period, are eager to sell at losses, said market players.

With withdrawals and delays coupled with selling pressure in the secondary market for recently listed technology shares have stifled the sentiments. The unlisted market has lost the excitement it witnessed a year back.

Shares of the five marquee listed startups—Zomato, Paytm, Nykaa, Policybazaar and Delhivery—have crashed more than 50 per cent from their highs. The fall share prices in the unlisted market too is reflective of this, said market players.

 “A year back when there was a bull run for unlisted shares, specifically for new age tech firms, many investors entered at high valuations. For some of the companies, valuations at which investors bought at were even higher than at what the companies listed on the bourses. Now the demand has fizzled,” said Umesh Paliwal, co-founder, UnlistedZone.

Investors who are still in profit in these companies are looking to exit but have seen poor demand leading to fall in the prices while the ones still in red are waiting for fairer prices, said experts.

Also, a handful of companies that are able to hit the markets are able to do so by lowering the valuations. This has also hurt those dealing in the unlisted space.

“As many IPOs were either priced lower than expected or they were available at much higher valuations in the unlisted market, investors who placed their bets in the financial year 2021-22 ended up losing a lot of money,” Paliwal added.

Typically, companies that raise money from private equity investors issue stock options to their employees that are available for trading in the unlisted space.

Dealers expect no recovery in the sentiment or prices in the unlisted market for the next 12-18 months. Only in very few cases where HNIs have confidence of valuations returning once market sentiment cheers up, they are putting foot forward to average out in smaller lots.

Losing fizz

• Volumes down by 70% in unlisted market (YoY)
• Pre-IPO prices have corrected over 50-70% from their 52-week highs
• Unlisted market was earlier considered good route to purchase at cheaper prices
• Investors who entered at high valuations in FY22 witnessed heavy capital erosion
• Investors now cautious in loss-making companies