IPO-bound unlisted stocks see sharp correction amid HDB Finance listing setback

Shares of IPO-bound companies have seen a sharp correction in grey market prices over the past few weeks, following a prolonged bull run. Analysts attribute this pullback to stretched valuations that had run ahead of fundamentals, making the correction both expected and necessary.

The immediate trigger was the HDB Financial Services IPO, which, at an issue price of Rs 740 per share, was offered at more than a 40 percent discount to its then prevailing unlisted market price of Rs 1,250. Its muted listing performance further dampened sentiment across the unlisted stock ecosystem.

Manan Doshi of Unlisted Arena highlighted that investor behaviour in the unlisted space is often driven by FOMO (fear of missing out), with fundamentals frequently overlooked. While several pre-IPO success stories exist, he emphasized that long-term sustainability depends on realistic valuations and sound financials, not just IPO hype.

As a result, several marquee names which are IPO bound witnessed notable declines. National Securities Depository Limited (NSDL) saw its unlisted shares fall by nearly 21 percent over the past week—from Rs 1,275 to Rs 1,025. The correction is largely attributed to uncertainty around the IPO timeline.

NSDL, in a recent filing, disclosed that SEBI’s in-principle approval for its IPO now requires the listing process to be completed by July 31, 2025—an extension from the earlier deadline of April 13, 2024. The company warned that failure to meet this deadline could result in the need to seek further approvals, which may not be granted promptly.

Tata Capital shares declined around 14 percent to Rs 925 from Rs 1,075. The company’s announcement of a rights issue at Rs 343—a steep 64 percent discount to the prevailing unlisted price—fueled further bearishness. Tata Capital currently trades at over 100x trailing twelve-month trailing PE in the unlisted market.

Similarly, the National Stock Exchange (NSE) saw its unlisted stock drop over 6 percent to Rs 2,250, while Hero Fincorp lost 9 percent, falling to Rs 1,595. Vikram Solar shares tumbled 21 percent, down to Rs 375 from Rs 475. NSE trades at a trailing PE of 46x, Hero Fincorp at a lofty 185x, and Vikram Solar at around 149x.

According to Rajesh Palviya of Axis Securities, many retail and early investors are now rushing to exit these stocks before their IPOs launch. The HDB Financial example has raised caution among market participants, who are now anticipating similar IPO pricing trends—30 to 40 percent lower than unlisted market rates. Additionally, the six-month lock-in period post-listing has added to the caution, as investors holding unlisted shares cannot exit immediately after the IPO.

Palviya further noted that liquidity in the unlisted market is often thin, making price discovery unreliable. Demand-supply mismatches can cause significant price swings, increasing risk for investors. "The rush to book profits has intensified post-HDB’s listing, as investors are wary of further downside," he added.In light of the current trends, experts advise retail investors to avoid investing in unlisted shares without a clear understanding of the company’s business model and long-term prospects. Without adequate visibility and proper valuation benchmarks, participation in the unlisted space remains fraught with risks.