UNLISTED SHARES ...MANY OF THEM MIGHT REMAIN UNLISTED FOR GOOD

 Do you find the above prices now for these unlisted shares? Well, many of the prices might be lost for good. The irony of unlisted in the current moment is that many of them might remain unlisted for good.

The broking industry was going through a tough phase from the day the discount broking business picked up its growth. Unlisted shares were a very lucrative proposition and significant margin revenue was earned by the broking industry through miss- information about the right price of unlisted shares.  I am not getting into the details since everyone knows the trick of the game through which astronomical profit was earned by the stockbrokers and wealth outfits.

The survival of the startups and unlisted are very difficult and we will witness significant changes in the way the current euphoria of valuations will change dramatically for the whole industry. The Fintech, wealth tech and Insurance tech is going to be the worst hit. In fact, the service-driven technology companies outside the supply chain and consumption will face a major hit.  If you notice you will find food prices in Swiggy and Zomato have been hiked significantly. This means demand will shift from these platforms to traditional ones as price discounting packages come to an end.

Now the valuation of the unlisted shares has not only come down but their prospect of getting listed a driving extravagant valuation has fallen like a pack of cards. The IPO market is already flat enough and does not offer much premium under the current circumstances. This year -2022-23 around Rs 2.2 lakhs cr (including LIC) IPO was being expected to hit the market.  In 2021, nearly 60 companies raised ₹1.1 trillion from the markets. Well for the next 6 months the IPOs will not find the premium as expected  just 6 months before.

The recent soft bank fiasco of capital flows has placed significant pressure on the startups and these unlisted companies.  We know that till now around 10000 employees from different startups have been chopped off as of 27^th May 2022 and we still counting on more.  Cutting down on cost and cost control and drop in valuations and new revaluations are placing significant nightmare for the unlisted shareholder. The retail clients as well as the semi HNI clients have significant inflows stuck in these unlisted shares. Further bitcoin correction has led to an indirect outflow liquidity crunch among investors.

The rate of an Interest rate hike will make capital to be costlier and this will force cuts in its portfolio and measures for cash conservation. The mad game of lunatic valuations based on stories and not numbers has come to an end.  From management to business models everything will be now deeply scrutinized in order to derive the correct valuations of the startups/unlisted companies. 

If we look at the slowdown numbers of the capital infusion into the startup culture you will find that from the record quarterly funding of $17.1 Bn in Q3, the tally fell to $14.5 Bn in Q4 2021 and then $11.8 Bn in Q1 2022.  Well, this number is going to fall more in coming quarters as liquidity become costlier and mad valuations come down more. The funniest part is that most of the buyers of the unlisted shares don’t even know much about the companies and it has been a mere transaction-based game linked with the behavioral aspect of STATUS-BASED investments. Most of the deals unlisted have been based on abnormal valuations and price-based momentum without understanding the source of revenue for the business despite of knowing it’s a cash-burring organization.

The Fintech and wealth-tech startups are going to be the biggest suffer from the carnage in startup funding. PE and VC will be desperate to sell stakes and exit since the premium of the industry has come to a halt. Revenues will be in focus followed by growth in profitability.  The concept of burning cash based on the theory of building a business is now out of the window.  We will find significant M&A in startups and most of them getting sold off at much lower prices creating history and lessons for the upcoming startup business models.

Many unlisted will get Merged and cash-rich quality companies will take over the startups where the long-term business values are visible and current situations get to make them available at a much lower valuation.

It going to be shopping season for many startups who were previously being valued as the next Unicorn. Well, survival is at stake and reasonable business valuation and profits on paper are the demand of the time. Cash Burring days are over.  Coming back to where we started unlisted shares which have been sold by the distributors in anticipation that they will get a similar rally of gains well they are going to suffer for a long. The story of long-term recovery in these prices is now dependent on business value and its long terms values rather than on mad valuation and easy money funding.