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An initial public offering (IPO) is the route to getting listed on the stock market for companies. IPO is part of the primary market and comprises fresh issues of equity shares and offer for sale (OFS) by a company. In the majority of cases, the IPOs are fully or oversubscribed due to high demand. When demand for an IPO is high, chances are that some investors’ applications may not go through and they would end up not receiving any shares. However, there are many other opportunities to buy IPO shares and one such would be pre-market.
In recent times, pre-IPO markets are gaining popularity with traction from retail investors. Earlier, the pre-market was packed by high-net-worth investors.
Manish Khanna Co-founder at Unlisted Assets said, “Pre-IPO markets trade are the trades in shares of start-up or matured public companies before they get themselves listed on the stock exchange. Earlier pre-IPO investing was not accessible to retail investors due to constraints on availability in smaller blocks and the shares were generally available in large blocks for institutional investors.”
He added, “with few tech-enabled platforms which provide end-to-end liquidity to Retail Users, buying and selling of unlisted shares have become safe, secure, seamless and transparent for retail investors.”
Unlisted Assets co-founder highlighted the purpose of Pre-IPO market trades. These are:
– Exit to various stakeholders
– With the increase in the number of unicorns in India, the opportunity of creating a liquidity window for investors has widened. Investing in start-ups in their development stage can generate exponential returns.
– Liquidity window to Existing employees
– Often start-ups and privately-held companies face a liquidity crunch because of the absence of the market, enabling them to sell shares. Secondary markets provide monetization opportunities for employees in unlisted companies including pre-IPO and start-up companies.
– Confirmed Investment
– Pre-IPO markets ensure that investors get sure-shot access to inventory unlike applying for an IPO, where the probability of allotment might be very low for high-growth companies.
For Budget 2023 expectations, Khanna said, in the unlisted market, there has been a considerable increase in the participation of retail and institutional investors including ESOP holders which has created a demand for the creation of liquidity protocol around the ecosystem of unlisted shares in India. At times, it is very difficult for investors to take an exit and liquidate their investments.
“Though some of the platforms have come up to provide monetization opportunities for investors and employees in unlisted companies including pre-IPO and start-up companies where it is tough to get liquidity pooled against unlisted shares/ESOP of those companies, in the 2023 budget, a tax relief or a boost can be given to such platforms for their promotion and growth,” Khanna added.
On the IPO market outlook for 2023, Subramanya SV, Co-founder & CEO of Fisdom said, Indian capital markets have been robust in the recent few months. He added, “We are seeing several IPOs getting completed with good post-listing performance as well. This robustness for IPOs will continue because these IPOs are being supported by domestic retail and institutional capital unlike earlier when capital markets relied heavily on foreign institutional investors. Flows into domestic mutual funds and vehicles like Alternate Investment Funds are strong.”
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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