Thinking unlisted shares will give big IPO gains? Experts say think again

Experts warn that unlisted shares often disappoint after IPO due to hype, low liquidity, and valuation gaps

It usually starts with a tip by a cousin, a colleague or a Telegram group claiming that a certain company’s unlisted shares are “going to explode after the IPO.” The pitch sounds irresistible, “Buy now at a discount, sell on listing day, and double your money.” For many retail investors, this fear of missing out (FOMO) is enough to take a leap. 

But wealth advisors caution that the unlisted market often works very differently from what investors imagine, and the promised jackpot rarely materialises.

 

Misconceptions drive risky behaviour

A big reason for misplaced confidence is misunderstanding how the unlisted market actually operates. 

 

Ranjit Jha, managing director and chief executive officer of Rurash Financials, says many investors treat unlisted deals like private equity-style opportunities or assume they function like grey-market trades. 

He adds that investors often believe the lock-in lasts two years, when it is actually six months, and think tax rules are drastically different, “even though capital gains treatment is largely similar.”

 

Thomas Stephen, head-preferred at Anand Rathi Share and Stock Brokers, says retail investors frequently expect unlisted prices to match or exceed IPO valuations, even though these pre-IPO prices often reflect speculation rather than fundamentals. 

 

Real-life examples show how “jackpots” turn into losses

 

Several recent cases highlight how hype-driven prices can disappoint.

 

Jha points to Tata Capital, where investors who bought unlisted shares at higher valuations saw “muted or even negative outcomes” after listing because they skipped due diligence or adviser guidance.

 

Stephen highlights even starker gaps. HDB Financial Services traded at around Rs 1,200+ in the unlisted market but listed at

 

an IPO price band of Rs 700–740. Tata Capital’s unlisted prices were near Rs 1,125, while its IPO band was Rs 310-326, a nearly 70 per cent erosion for early buyers.

 

He adds that while early investors in Groww did see meaningful gains, such examples remain outliers. 

 

What investors underestimate: Liquidity, valuation gaps and misinformation

Liquidity is the biggest blind spot. Jha says investors assume they can exit “easily,” which rarely holds true.

 

Stephen adds that limited disclosures, inflated sentiment, and reliance on unverified information widen valuation gaps and create unrealistic expectations.

 

What to check before buying unlisted shares

Experts recommend:

 

• Reviewing promoter background and governance
• Checking financials, valuations and IPO timelines
• Verifying documentation and avoiding “guaranteed gains” claims
• Being cautious when unlisted prices far exceed recent fundraising values
• Limiting overall exposure to 5–10 per cent, Stephen suggests

Experts say FOMO should never drive unlisted share purchases, informed due diligence should.