How Unlisted Share Demand Changes During Bull and Bear Markets

Are you curious if unlisted shares for companies like Zepto, OYO, and NSE naturally absorb attention and then disappear? They do, and you can chalk it up to the market cycle. They are one of the most important players in the demand for unlisted shares in India, and learning how to leverage them will change your ability to analyze the market. If you are struggling to understand the relationship between the market cycles and the shift of unlisted shares, you need to read this. We examine unlisted shares and how they function during bull and bear markets. We do so by analyzing real world examples in specific stock markets, demand influencers, and the dynamics that exist in the marketplace.

Table of Contents

• What Are Unlisted Shares?
• Understanding Cycles of Bull and Bear Markets
• Unlisted Share Demand in Bull Markets
• Unlisted Share Demand in Bear Markets
• What Causes Changes in Demand?
• Demand Changes by Sector and Market Cycle
• Real-World Applications: NSE, MSEI, NCDEX, OYO, Zepto, Polymatech & Others
• Unlisted Shares and Market Cycles
• Conclusion

What Are Unlisted Shares?

Unlisted shares are equity in companies that have not yet listed on major stock exchanges, like NSE or BSE. Pre-IPO shares, shares of private companies with no clear plans to list, shares of delisted public companies trading in OTC or grey markets, and subsidiary shares that are not listed independently are all classified within this category. Unlisted shares are mostly available through SEBI-registered intermediaries, OTC platforms, or niche marketplaces. These platforms provide a curated list of unlisted shares available in India. Unlisted shares are different from listed shares, as listed shares have continuous trading prices available in exchange screens. Unlisted shares are traded in OTC markets, and trades are away from the exchange, making the price determined by consensus of buyer and seller.

Understanding Bull and Bear Market Cycles

Recognizing how the demand for unlisted shares changes requires a basic understanding of how the market operates.

Bull Market: A period of sustained increases in market prices, heightened economic growth, increased investment by both individual and institutional investors, and increased market optimism. In the Indian market, notable bull phases were experienced in 2014–2018 and the post-COVID recovery rally from 2020–2022.

Bear Market: A period of sustained price decreases of at least 20% from previous market highs, characterized by a lower willingness to take on risk, outflows of Foreign Institutional Investment (FII), and decreased market optimism. In the Indian market, bear phases were experienced during 2008–2009, early 2020, and the 2022 calendar year. While there is no index for the unlisted share market, it is influenced by the same macro factors that determine bull and bear cycles,

(i) Initial Public Offering (IPO) activity,

(ii) liquidity,

(iii) the flow and participation of institutional investors. In fact, the unlisted markets tend to amplify these signals both positively and negatively.

How Unlisted Share Demand Behaves in a Bull Market

In a bull market, the demand for unlisted shares spikes and this demand can often mirror and exceed the demand for shares in the listed markets. The following is the general explanation for the increased demand for unlisted shares.

Pre-IPO Demand is Driven by Strong IPOs

A bull market is often characterized by a strong Initial Public Offering (IPO) market. In the event that the newly listed companies on the market perform well, investors in the market will shift their focus to the next potential IPOs. This trend means that investors in the market will be willing to pay a premium for unlisted shares that are pre-IPO so that they can purchase these shares ahead of the respective company’s public listing.

Valuation Premiums Converge

Bull markets make buyers more tolerant of narrower margins. Unlisted shares that would typically trade at a significant discount to their IPO price may trade with a smaller discount or, in some cases, even at a premium to the expected price.

Increased HNIs and Retail Market Participation

A strong listed market results in more liquidity among HNIs and experienced retail participants, a portion of which finds its way to the unlisted market as a means of gaining exposure to unlisted shares of attractive companies before they go public.

Thin Supply Intensifies Grey Market Premiums

Demand for unlisted equity may exceed the supply. In such cases, the Grey Market Premium (GMP) and OTC prices increase.

Increased OTC Activity

Optimism in the bull markets translates into shorter expected holding periods, meaning greater anticipated activity in the OTC markets.

Demand for Unlisted Shares in Bear Markets

A bear market brings a sharp drop to the unlisted market. Demand contracts significantly, and the lack of exchange-driven liquidity translates these changes into stark differences.

The IPO Pipeline Slows Down

When markets fall, companies often withdraw from planned IPOs. This is especially true for companies offering shares to the public, as they lose a primary motivation to go public. Without a foreseeable IPO, demand for pre-IPO shares significantly declines.

Discounts to Estimated IPO Price Widen

During bear markets, listed asset prices generally fall. Unlisted shares that are expected to be listed at a certain price during a bullish cycle see over-the-counter prices (OTC) shrink to reflect anticipated selling pressure. Sellers become more aggressive to sell at lower prices, and buyers expect larger price drops to hedge against uncertainty.

Demand Becomes More Selective

In bear markets, demand and therefore pricing tend to cluster. Demand concentrates around profitable businesses and sectors that participate in markets with favorable trends. Demand declines the most for businesses that rely on speculative pricing and whose fundamentals have not been proven.

Quality of Business Becomes the Key Differentiator

The prevalence of Bull markets can often hide the weak fundamentals of many businesses, especially in the unlisted space. Bear markets, on the other hand, tend to deepen the divides between the companies that possess real business quality and those that mainly sell a narrative. Companies that have consistent revenues and manageable liabilities, as well as a clear line of business sector support, tend to retain a relatively stronger demand even when the broader market is negative.

Key Forces That Drive Demand Shifts in the Unlisted Share Market

Interrelated variables determine the movement of demand for unlisted shares over market cycles.

IPO Market Activity: Strong IPO activity leads to strong OTC market demand for pre-IPO unlisted shares, and the opposite is true as a result of a weak IPO market.

Broader Market Sentiment: The first and major phase of market activity.

FII and DII Flows: The buying of foreign or domestic formal institutional investors in the listed market means a greater appetite for risk, which often leads to positive sentiment in unlisted markets.

Grey Market Premium (GMP) Movement: GMP is the most sought-after indicator of pre-IPO demand in the market.

Regulatory Environment: The SEBI guidelines concerning unlisted securities and the shifting of shares in the OTC market.

Business Fundamentals of the Underlying Company: The scrutiny of business fundamentals tends to increase the most in all markets when the market is unfavorable. This includes the revenues of the firm, profitability, and the sectors in which the firm operates.

Promoter and Institutional Shareholder Activity: Movements by large private equity and venture capital shareholders may affect the level of demand from secondary OTC buyers.

Sector-Wise Demand Patterns During Market Cycles

The unlisted shares market is segmented. Demand varies by market segment based on business characteristics and macro market cyclicality.

Technology and Fintech

Segments most likely to circulate unlisted company shares in a bullish market are technology and fintech, due to growth and an active IPO pipeline. As demand in bear markets tends to drop, especially when operating profits and positive cash flows from trading are not present, the same characteristics put them at risk.

Financial Services: Exchanges, Brokerages, NBFCs

Demand for unlisted shares of exchanges tends to be fairly stable, as business activities and revenues of the exchange and clearing house are likely to increase during bear markets.

Consumer and E-Commerce

Demand for unlisted consumer and e-commerce shares is more sensitive to changing market dynamics and the outlook for initial public offerings (IPOs). During a bear market, unlisted shares from companies that rapidly grow market presence, such as food delivery and consumer internet companies, become much harder to sell and trade.

Renewable Energy

Unlisted shares from companies in the renewable energy sector are more resilient due to demand from the Indian government’s National Green Energy policy, giving the sector cyclical demand independence.

Infrastructure and Manufacturing

These sectors have less volatility in the unlisted demand cycle. Unlike other sectors, manufacturing and infrastructure demand don’t fundamentally spike in bull markets and are sustained in slow markets, especially when revenue and order book visibility are secured.

Real Examples: NSE, MSEI, NCDEX, OYO, Zepto, Polymatech & More

Using real companies helps to illustrate how these demands actually manifest.

NSE Unlisted Shares

The National Stock Exchange of India is arguably the most demanded unlisted security in the country. Even in the absence of a confirmed IPO in the near future, NSE shares have continued to see impressive OTC market activity across all cycles. This is largely due to the company’s strong market position, consistent performance, and the sustained expectations of listing in the future.

MSEI Unlisted Shares

The Metropolitan Stock Exchange of India is a fundamentally different stock exchange in the country. MSEI unlisted shares see strong demand, and correspondingly weak demand, in tight alignment with the overall demand in the Indian capital markets. In a bull market, when trading volumes increase, demand goes up and when the markets are quiet, so is the demand in the unlisted shares.

NCDEX Unlisted Shares

As India’s primary exchange for commodity derivatives, NCDEX unlisted shares are very much influenced by commodity market cycles. The unlisted shares of NCDEX become even more appealing during periods of high agricultural commodity pricing and increased hedging activity, all making it an excellent example of how sector cycles combine with market cycles.

OYO Unlisted Shares

One of the best examples of the shift from bull demand to bear demand is OYO. During one of the strongest periods of the new economy and hospitality surge, OYO unlisted shares were focused on, and OTX activity resulted in high premiums. During this time, the company underwent structural changes, and demand, along with pricing, fell. This was followed by a sharp increase in OTX activity as the company refocused its core business.

Zepto Unlisted Shares

Zepto is a good example of how unlisted markets can harbor high-growth, VC-backed companies. While there is strong market interest backed by an active IPO and rapid growth of GMV, unlisted shares of Zepto can be highly traded in the OTX market. This activity can be diminished when market conditions change to a bear phase, and the IPO is no longer anticipated.

Polymatech Unlisted Shares

Polymatech unlisted shares reflect a demand profile on the manufacturing side that is less about market sentiment and more about sector policy momentum. As a company in the semiconductor packaging sector that supports India’s growing ambitions in chip manufacturing, demand here is more about the government policy and sector development than market cycles.

Onix Renewables Unlisted Shares

In the case of Onix Renewables Unlisted Shares, the demand for them is relatively constant because of the long-term energy transition story that many market participants follow and because it is partially decoupled from the fluctuations in the market, thanks to the structural policy tailwinds. This means that in the weeks where the Sensex (the stock market index for BSE, Bombay Stock Exchange) is either down or up, many participants will still be interested in Onix Renewables.

How to Compare Unlisted Shares Across Market Phases

For those who follow the unlisted market, one of the more valuable skills is the ability to compare across companies in the same sector, as well as compare them to their listed counterparts. This practice will help you assess how each name’s demand profile holds up across varying market conditions.

Relevant parameters for this analysis are:

• Valuation multiples versus public sector peers (P/E, EV/Revenue, EV/EBITDA, if applicable).
• Revenue and business dynamics over the past several years
• Quality of shareholding, who the promoters and institutional investors are
• Has the company submitted a Draft Red Herring Prospectus (DRHP) or declared plans for an IPO?
• The grey market premium is an informal measure of demand and supply.
• The OTC bid-ask spread is an informal measure of demand and supply.

For an organized knowledge of the leading unlisted companies on these dimensions, visit DelistedStocks.in is a great place to start for the cycle-aware research.

Conclusion

The Indian market for unlisted shares is responsive to sentiment, liquidity, and the IPO cycle, and this responsiveness becomes more accentuated by OTC-only liquidity. As a result, the Indian market for unlisted shares does not operate in a vacuum. Broader capital market trends both positive and negative affect the Indian market for unlisted shares. In a bull market, the unlisted shares market becomes more active as premiums in the OTC market increase, IPO activity grows, and investors become more interested in the pre-IPO market. In a bear market, a lack of liquidity becomes the most noticeable characteristic of the unlisted shares market.

Demand for unlisted shares declines, premiums in the OTC market decrease, the pace of IPOs slows, and only companies with robust operational fundamentals attract interest in the OTC market. Demand for unlisted shares and the underlying forces affecting that demand allow for a better understanding of the market for unlisted shares. When considering unlisted shares in the NSE and MSEI markets, or the OTC markets for Zepto, OYO, or Polymatech, you will find that market cycles serve as the context, fundamentals serve as the foundation, and the IPO pipeline drives everything between the three.

FAQ’s

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.