From CSK to HDB Financial Services: Nithin Kamath warns against hype in unlisted share market
Zerodha co-founder Nithin Kamath has raised concerns about the growing frenzy among retail investors around unlisted shares, warning that the risks are far greater than many realize.
ADVERTISEMENT In a recent post on X, Kamath shared how a wealth manager approached Zerodha to buy shares in one of its unlisted companies, intending to sell them immediately at a 50% markup. He described the craze for shares of companies like the National Stock Exchange (NSE), Metropolitan Stock Exchange (MSEI), and Chennai Super Kings among retail investors as 'crazy.'
'Most investors think they can make easy money by picking these pre-IPO companies, waiting for the IPO, and making big listing gains. But it's not as easy as it sounds, and there are all sorts of risks,' Kamath cautioned.
He pointed to HDB Financial Services as a recent example, noting that its IPO price band was set nearly 40% below the last traded price on unlisted platforms, burning many early investors.According to Kamath, one of the biggest problems with the unlisted shares market is the lack of price discovery. Unlike stock exchanges, where trades happen transparently and prices reflect market demand and fundamentals, unlisted shares are traded on unregulated platforms—with no oversight and often excessive markups and commissions.Further, there's no guarantee of liquidity. Some companies can take years to go public—NSE's IPO, for example, has been in the works for over a decade. In the meantime, investors are stuck with illiquid shares and have very little visibility into the company's performance.
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'Unlisted companies also make fewer disclosures than listed companies,' Kamath noted. 'You are better off investing in mutual funds than trying to pick unlisted companies.'
To provide deeper context, Kamath linked to a blog post by Bhuvan, a financial researcher at Zerodha, which breaks down how these platforms function and why investors should be wary.
ADVERTISEMENT 'They aggregate the supply of unlisted shares like NSE, Chennai Super Kings, Boat, Oyo Rooms, etc., add a markup to the price, and then sell them,' Bhuvan wrote. 'On top of the markups, there are commissions as well. In many cases, the markups plus commissions can be anywhere from 30–40% to 100–200%.'Bhuvan noted that the post-COVID investment boom drew more retail interest into these markets, fueled by a simple pitch: discover the next big company before it lists. But the reality often doesn't match the promise.
ADVERTISEMENT The blog also cited recent losses, including HDB Financial Services, where shares once traded above Rs 1,500 in the unlisted market but were later priced at Rs 700–740 in the IPO band. Similarly, in 2023, investors in Reliance Retail lost as much as 60% after a reduction in share capital.In December 2024, Sebi issued a circular warning that transactions on such unregulated platforms may be illegal:
ADVERTISEMENT 'Certain electronic platforms and/or websites are facilitating transactions in unlisted securities of public limited companies. Such activities are in violation of the Securities Contract (Regulation) Act, 1956, and SEBI Act, 1992,' the regulator said.Bhuvan ended his blog with a blunt reality check for retail investors:'If you don't have an edge, you're just continuing the age-old tradition of retail investors donating money to the markets—this time without tax benefits.'Kamath and Bhuvan's message is clear: unlisted shares are high-risk, low-transparency, and often overpriced. Retail investors are better served sticking to regulated investment options like mutual funds, ETFs, or direct equities through stock exchanges.
(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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