Tata Capital IPO pops unlisted market bubble with price band shock

Unlisted investors confront lower than expected prices and waning pre-listing gains

Tata Capital’s initial public offering (IPO) price band has jolted the unlisted share market, where investors had paid as much as ₹1,125 apiece for the non-banking arm of Tata Group.

 

On Monday, the company fixed its price band at ₹310–326 a share, pegging its valuation at nearly ₹1.4 trillion.

 

Back in April 2024, Tata Capital’s unlisted stock had surged past ₹1,000 amid a frenzy in the IPO market. Investors often rush to pick up marquee names in the grey market ahead of listings, hoping for hefty gains.

 

According to the company’s red herring prospectus, there were around 37,000 public shareholders, accounting for nearly a 3.7 per cent stake in the company.

 

“Transactions that happen in the unlisted markets are often without any interaction with the company. So, often, there is no correlation between the unlisted price and the actual price,” said V Jayasankar, managing director at Kotak Investment Banking, during the Tata Capital IPO conference. 

 

While the strategy of buying in the unlisted market works in buoyant markets, it has misfired in several high-profile cases. Shares of Tata Technologies, HDB Financial Services, and Nazara Technologies were priced at less than half their peak unlisted prices.

 

National Securities Depository stock also ended up over 37 per cent below its grey market peak. However, in some cases, the losses for unlisted investors were mitigated thanks to strong after-listing performance.

 

“Retail investors are often drawn to marquee names, pushing demand far above available supply and driving up prices. In Tata Capital’s case, although the rights issue was priced at ₹343, the stock commanded a sharp premium in the unlisted market. With the IPO price band now set lower than the rights issue, those who bought expecting strong listing gains are staring at losses,” said Dinesh Gupta, director at UnlistedZone, a leading platform for trading off-market shares. 

 

“We have repeatedly cautioned investors about such risks,” he added.

 

Last month, Securities and Exchange Board of India (Sebi) Chairman Tuhin Kanta Pandey had signalled the possibility of a pilot platform for pre-IPO companies, highlighting that pre-listing information is not always enough for investors to make an informed choice. He added that a regulated venue could be developed where pre-IPO companies can choose to trade, subject to certain disclosures.

 

The market regulator will have to engage with the Ministry of Corporate Affairs to facilitate this, as unlisted companies fall within its domain.

 

Industry players said that, just like the listed market, winning trades in the unlisted market also involve identifying and investing in a high-growth company months or years before it goes for an IPO.

 

Companies available for trading in the unlisted markets are those that have issued shares to their staff under any employee stock ownership plan (esop). As employees seek liquidity, they often sell their esops. In addition, companies that have made large private placements, such as the National Stock Exchange, are also available in the unlisted market. Shares purchased are reflected in one’s dematerialised account.

 

To be clear, fresh fundraising is not permitted in the unlisted market. In other words, a company cannot use the unlisted market to issue new shares to raise capital, as this would contravene the Companies Act and the Sebi Act.

 

As long as the trades are secondary in nature, there are no legal issues, say market players.