Why Smart Investors Are Turning to Unlisted Shares for Higher Returns

The charm and increasing popularity of unlisted shares particularly those of companies preparing to go public is more than just a curiosity. It’s a calculated bet. When a company files a draft prospectus for an IPO, the anticipation doesn’t just reflect in the stock exchange listings it often shows first in the unlisted share market. And in India today, some of these early-stage trades are drawing serious attention.

Take the case of the National Stock Exchange of India (NSE). Its unlisted stock began climbing as speculation mounted around its own future public listing; many investors treated its unlisted share price as a proxy for “early access” to what they believed would be a blockbuster IPO. At present NSE is trading in unlisted markets. NSE has shown an impressive performance in Q1 FY25. Operating revenue increased by 51%, reaching ₹4,510 Cr. Profit also surged by 39%, reaching ₹2,567 Cr, with a profit margin of 52%. NSE Share price is currently around ₹1,937. 

Similarly, the National Commodity & Derivatives Exchange (NCDEX) saw its unlisted shares rally nearly 150% over the past year following regulatory cues and investor interest in its product expansion plans. 

Why the Trend is Getting Stronger?

Guess what? a bunch of structural factors contribute to this transformation:

• A deepening and growing pool of high-net-worth individuals and family offices seeking diversification.

  
  

• Robust IPO pipelines that spark early interest when companies file DRHPs, unlisted market participants move in.

  
  

• Growing infrastructure for trading unlisted shares (unlisted market platforms) that simplify access.

  
  

• Elevated valuations in the listed ecosystem making early‐stage opportunities more appealing.

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Why the craze for IPO-bound unlisted shares?

1. IPO allotment chance is low, so investors bypass it.

Most IPOs are oversubscribed. Many retail and even HNI investors never receive an allotment. Buying in the unlisted equity market of that same company becomes an alternate route. If the company eventually lists, these early investors hope they’ll gain an advantage. Investors who worry about “missing out” in the allotment lottery often turn to buying unlisted shares of IPO-bound firms. 

2.   The lure of catching multi-baggers early

The logic is simple: pay a relatively lower price today in the unlisted space, and aim for the listing event and subsequent public market gains. These deals carry higher risk, but also higher potential payoff. That’s what drives interest to invest in unlisted shares of fast-growing firms with IPO potential.

3.  Growth participation before the company hits the public market

Buying unlisted shares means stepping into a company during its growth phase—before everyone else can buy it on the exchange. When the company finally lists, that early entry often matters. Many investors see this as a way to “ride the lift” rather than wait for public access.

4.  Relative value compared to listed markets

With listed shares often trading at elevated multiples, the unlisted share price of an IPO-bound company can appear comparatively attractive. That valuation gap draws investors into the private market where they believe the potential upside remains untapped.

Reality check: The risks are real

The flip side of this story is caution. The unlisted market, especially for IPO-bound firms, has shown sharp corrections and disappointments. For example, in October 2025 the unlisted shares of several IPO-bound companies slumped up to 48% in two weeks as listing sentiment suddenly cooled.

What caused the correction? Analysts point to over-inflated unlisted pricing, weak listing pop expectations, and the fact that companies were pricing their IPOs significantly below their unlisted trading levels. For instance, companies like Tata Capital and HDB Financial Services anchored this trend by setting their IPO bands well below unlisted valuations, shaking investor confidence in the pre-IPO premium.

How smart investors approach the opportunity?

Those who succeed in this space treat it as a different game entirely. Here’s how:

• Business Model Check: Guess what, business model validation is important. They ask how the company makes money, what its moat is, and whether it scales.

  
  

• Financials: Under financial performance there are some KPIs. They examine margin trends, revenue growth, capital structure, and ask whether the growth is sustainable.

  
  

• Valuation vs. peers: They compare the target company’s valuation with similar listed peers, adjusting for stage and risk.

  
  

• Exit strategy & liquidity: They accept that holding may be longer-term and plan accordingly.

  
  

• Governance & transparency: They prioritize companies with credible and reliable promoters, integrity, clean disclosures, and board structures aligned with public-market norms and standards.

Final take

Unlisted shares can be a powerful source of outsized returns but require a different playbook: stricter due diligence, realistic exit deadlines and active risk management (liquidity planning governance controls valuation discipline). For investors who can stomach complexity and manage the complexity and wait, unlisted shares remain an attractive if bumpy route to alpha.

For instance, markets have seen dull and weak October listings and that hit unlisted shares. Many IPO-bound firms like Groww, Physicswallah, Lenskart, are in the radar for the upcoming public debut in the stock market. Analysts point to over-inflated unlisted pricing, weak listing pop expectations, and the fact that companies were pricing their IPOs significantly below their unlisted trading levels. For instance, companies like Tata Capital and HDB Financial Services anchored this trend by setting their IPO bands well below unlisted valuations, shaking investor confidence.

Buying unlisted shares can be a meaningful way to capture and part of early-stage growth in companies. For investors it’s a reminder: higher return promises come with certain risks and requires harder homework.

If you’re considering whether to invest in unlisted shares, particularly those of IPO-bound companies, remember: you’re buying growth and hope but you’re also buying risk, illiquidity and prediction. The potential for higher returns exists, but so does the potential for risk because reward cannot be earned without risk.