It is common knowledge amongst investors that the fundamentals aren’t the only reason the market moves. Take, for example, the emotional current that flows throughout the unlisted share market. How emotional does the market get when that current flows into sectors that many people are not even aware of? Over the past five years, India’s unlisted share market has seen tremendous growth. This can largely be attributed to the increasing valuations of startups, many high-profile IPOs, and a new generation of investors who actively look for early investment opportunities. The unlisted market has no circuit breakers, no real-time tickers, and no speculation limits, making the unlisted market even more sensitive to changes in market sentiment. You can explore and strengthen your position in the unlisted share market, but to effectively do that, you must understand the psychological and macro circumstances behind it. In this guide, we explain in detail how sentiments affect the trading of unlisted shares, which groups of stocks are most impacted, and how to recognise these trading patterns before the mass market participants.
Table of Contents
- What Is Market Sentiment and Why Does It Matter?
- How the Unlisted Share Market Works in India
- The Direct Impact of Bullish Sentiment on Unlisted Shares
- How Bearish Sentiment Triggers a Slowdown in Unlisted Activity
- NSE & MSEI Unlisted Shares: A Case Study in Sentiment-Driven Demand
- How IPO Frenzy Amplifies Unlisted Share Demand
- Real-World Examples: Stocks That Moved on Pure Sentiment
- Sentiment Indicators Investors Can Track
- How to Balance Sentiment and Fundamentals
- Frequently Asked Questions
What Is Market Sentiment and Why Does It Matter?
Market sentiment is how investors feel about the movements of a specific market or asset class at a certain point in time. Like the emotional temperature of the market, are the participants feeling the fear, or are they being greedy, optimistic, or pessimistic?
Sentiment is formed by:
- Macroeconomic data like the preceding quarter’s GDP growth, inflation, or RBI policy.
- Cues from the global market, like the US Fed decisions, FII flows, or the prices of crude oil.
- Cycles of corporate earnings and the IPO pipeline.
- The narratives in the news and on social media.
- Regulatory changes from SEBI, RBI, or MCA.
In listed markets, sentiment is captured through price movements or trading volumes that the market can see in real time. However, in the unlisted share market, sentiment is captured through bid-ask spreads, deal volumes, buyer and seller ratios, and through premiums or discounts to book value. Due to a lack of centralised exchanges, sentiment often takes days or weeks to fully integrate into unlisted shares.
How the Unlisted Share Market Functions in India
Before analysing sentiment, let’s first take a look at how unlisted shares are sold and bought in India.
Unlisted shares represent equity in companies listed on NSE and BSE, or companies that have been delisted. The trade occurs in India through:
- OTC (Over-the-Counter) Networks: informal broker networks.
- Aggregator Platforms: Platforms such as DelistedStocks, where buying and selling unlisted shares are facilitated.
- Direct Peer-to-Peer Deals: where HNIs and family offices trade directly.
Sellers consist of employees with ESOP shares, early investors, and seed and stage promoters (investors) seeking partial liquidity. Buyers are typically wealthy HNIs, NRIs and family offices, as well as less wealthy family offices, and, most recently, retail investors who can afford to wait for liquidity. There’s no automated matching engine, so market mood and human judgment permeate each transaction, making sentiment the most important factor to price.
NSE & MSEI Unlisted Shares: A Case Study in Sentiment-Driven Demand
Sentiment’s effect on the unlisted market can be objectively measured through various stock exchange unlisted shares.
In the Indian unlisted market, NSE unlisted shares are the most actively monitored instruments. There is a potential spike in demand for NSE unlisted shares when:
- There is a surge in equity market activity. This means NSE’s revenue is resulting in positive growth.
- The market is experiencing a large volume of IPOs. The IPOs can potentially boost NSE’s income through increased listing fees.
- There is an increase in the number of retail investors. There is an increase in dematerialised account openings, meaning revenue is increasing.
In comparison, MSEI unlisted shares, which are shares of the Metropolitan Stock Exchange of India, follow a different sentiment pattern that is more closely related to SEBI’s position on new exchange entrants and the competition provided by NSE and BSE. The demand for NSE, MSEI, and NCDEX unlisted shares is fundamentally related to the condition of India’s financial markets. Each of the three unlisted exchanges benefits from a thriving market, but the impact of sentiment varies depending on the exchange’s revenue model and its position in the regulatory process. This makes unlisted shares of exchanges a proxy investment on the growth of the Indian capital markets, which is highly sentiment-driven and cyclical.
How Has IPO Frenzy Increased the Demand for Unlisted Shares?
The IPO pipeline is a massive sentiment driver for unlisted shares. Here’s how it happens:
Step 1: SEBI clears many DRHP filings at once. The IPO calendar is dense.
Step 2: The media observes the “IPO boom.” Retail investors, who lost out on the last listings, rush for pre-IPO opportunities.
Step 3: There is a spike in demand for unlisted shares of companies currently in the IPO pipeline, and for unlisted companies in the vicinity.
Step 4: The unlisted share market experiences a surge in prices. Typically, companies that are not at all close to filing a DRHP also experience spillover demand.
Step 5: The positive or negative performance of recent IPOs gives credibility to these sentiments.
Sentiment-Driven Unlisted Share Prices: Real Cases
Let’s examine a few companies that best demonstrate sentiment-driven unlisted share prices.
Polymatech Unlisted Shares
The Polymatech unlisted shares that are available over the counter tripled in value after the news of the Indian Government’s semiconductor policy and the PLI scheme for chip manufacturing. Investors began to focus on more immediate returns from the potential of Indian semiconductor production rather than waiting for the Polymatech Electronics IPO to be announced. This micro-cap stock continues to gain popularity among investors, leveraging the macro-economic conditions, despite the absence of production and revenue.
OYO Unlisted Shares
The sentiment-induced price movement of the over-the-counter shares of OYO has been equally extreme over the past year. OYO unlisted shares became particularly valuable as travel restrictions and COVID-related lockdowns eased and the world returned to normal travel. After losses and a withdrawal from their IPO proposition, OYO’s share prices fell. In the absence of news, public sentiment shifted, and value decreased, as employees began to sell their stock holdings and a negative sentiment was created.
Zepto Unlisted Shares
Zepto’s unlisted shares are an excellent example of the sentiment associated with funding rounds. Every time Zepto secured a funding round and increased its valuation, the unlisted shares rose in value on the aggregator platforms. The positive sentiment around quick-commerce, along with Zepto’s roadmap to profitability and its positioning versus competitors Blinkit and Swiggy Instamart, influenced the price of the unlisted stock.
NCDEX Unlisted Shares
The unlisted shares of NCDEX react to a more specific sentiment, which is based on activity in the agri-commodity market. With the recent update, if the weather forecast is favourable during the monsoon, that will increase trading volumes and with that increase in business comes confidence in NCDEX’s business model and an increase in the demand for their unlisted shares.
Onix Renewables Unlisted Shares
Onix Renewables unlisted shares provide an example of the clean energy and ESG market trends affecting unlisted stock. Due to India’s renewable energy goals, including solar and wind targets, investor interest in unlisted green energy stocks remains active. As a company in this sector, Onix benefits from government clean energy announcements and ESG capital initiatives focused on India.
Sentiment Indicators Investors Can Track
You don’t have to trust your instincts. There are several indicators to help gauge sentiment in the unlisted share market:
FII Flow Data: Sustained Foreign Institutional Investors (FII) buying corresponds to overall market optimism, which eventually spills over to the unlisted market through High Net Individuals (HNI) and family office buying.
IPO Grey Market Premium (GMP): This provides a real-time measure of sentiment in the unlisted market. A strong upcoming IPO grey market indicates robust optimism among unlisted investors.
Draft Red Herring Prospectus (DRHP) Filings with SEBI: An increase in the number of filings indicates more companies are in the pipeline for listing; therefore, greater potential to create a market for unlisted stock.
Startup Funding Round Activity: Strong financing activity from Venture Capital (VC) and Private Equity (PE) firms tends to support valuations and confidence in the unlisted market.
Data for Unlisted Share Comparison: Using tools like the unlisted shares comparison tool enables you to see how unlisted names are performing against each other. Tracking this data helps you understand which sectors are getting attention and which ones are ignored.
Balancing Sentiment and Fundamentals
Top unlisted share investors successfully manage sentiment and are grounded in fundamentals. Here’s a framework you can use.
Evaluate the Business First: Avoid getting lost in price or market movements. Evaluate the company’s business model. Is it credible? Scalable? Is the company’s sector positive? Is management credible?
Timing, Not Selection: Sentiment is important as an indicator for choosing when (price dip) or if (price surge) to sell, but it shouldn’t be a consideration when choosing to buy.
Balance Sentiment Cycles: Do not commit all unlisted share positions to a single theme. Adopt a good balance between unlisted names associated with higher risk themes and more defensive unlisted names (profitable unlisted companies on the verge of IPO).
Comparison Perspective: Looking at the price of similar unlisted companies is a good way to identify overvaluation in your holdings. The unlisted shares comparison tool is a great asset for this.
Define Strict Exit Rules: Establish hard rules for exit. Decide at which price or which news you will definitely sell, regardless of sentiment.
Track Across the Board: Always consider the entire value of unlisted names: from NSE unlisted shares and MSEI unlisted shares to those appearing in the unlisted market.
Conclusion
The unlisted share market is likely more emotion-driven than the publicly listed share market because it does not have transparency or the real-time feedback that regulated markets provide. Though the unlisted share market lacks structure, it is still influenced by market sentiment. This applies to the speed of transactions, pricing, deal premiums, and the level of interest for certain stocks. Acknowledging the role of sentiment means knowing when the market is creating real opportunities for buying and when it is masking fundamental weaknesses. The investors who are successful in the unlisted share market know how to identify how the market is responding to sentiment, use fundamental analysis, and keep enough cash to take advantage of opportunities.
Disclaimer
This article is for informational purposes only and should not be considered investment advice. Prices and data of unlisted shares are based on publicly available sources and may vary. Investors are advised to conduct independent research or consult financial professionals before making investment decisions.
