Unlisted Shares: All You Need To Know About This ‘Lucrative’ Grey Market

From Chennai Super Kings, Big Basket, to OYO and SBI Mutual Fund, India’s startup boom has created a hidden market in the last decade or so, which is now buzzing with opportunities: We are talking about the market for unlisted shares.

Unlike stocks listed on the NSE or BSE, these shares trade in a more private, less regulated environment- which gives early investors a chance to grab ownership stakes before the ‘high-profile IPOs’.

However, while the potential gains from unlisted shares can be exciting, understanding how this market works is what holds the key to making smart and informed decisions.

So before you dip your feet into this side of the investment world, let us understand this entire concept of unlisted shares, the risks, returns, liquidity, etc through this detailed blog of ours.

What are unlisted shares?

As their name suggests, unlisted shares are shares of a company which is not yet listed on stock exchanges such as BSE and NSE. The term is often interchangeably used with ’pre-IPO shares’. Unlisted shares are a form of alternative investment option, and they generally come into the limelight ahead of a company’s IPO.

Where are unlisted shares traded?

Unlisted shares are traded in something known as the grey market,which is an unregulated, parallel market that operates outside the regulated stock exchanges.​

Since these shares are not listed on NSE/BSE yet, transactions happen via intermediaries/brokers specializing in unlisted shares. Platforms such as Incred Money, Stockify, Wealth Wisdom and Unlisted Zone, among others offer investment in unlisted stocks.

Now, before we deep dive into the grey market, it's important to have a clear understanding about the difference between listed and unlisted shares.

Now let us come back to the deep dive we were doing on unlisted shares, and understand what happens in the grey market.

What happens in the unlisted grey market ahead of a company’s IPO?

The grey market for a particular stock tends to become very active once a company announces its IPO price band, i.e. typically around two weeks before the actual IPO subscription begins; and the trading continues until a day or two before official listing on NSE or BSE.

The participants include:

• Early investors such as employees with ESOPs, and venture capitalists who want to sell their shares

• Speculators (buyers) who are aiming to buy shares with the expectation of fetching higher prices after listing

• Grey market brokers or dealers who facilitate these unofficial trades​

Ways to invest in the grey market of unlisted shares

As a retail investor in India, first you need to select a way of investing in unlisted shares. Some of the popular methods to do so include:

1. Through registered unlisted share brokers and platforms such as Incred Money, Stockify, Wealth Wisdom and Unlisted Zone. On such platforms you can select the unlisted share in which you want to invest, and then place an order through the platform. Once you make the payment, the unlisted shares are transferred into your demat account.

2. Through direct deals with existing shareholders of a company, such as existing employees, founders or early investors who are now willing to liquidate before the IPO. However, this route typically requires a broker/intermediary to facilitate documentation and transfer.

3. Through private placements, venture capital or angel investors. These are usually targeted at HNIs, venture funds, or through wealth management firms.

Coming back to the most popular way amongst these for retail investors, i.e. investment through platforms and brokers. Here you need to understand one key terminology before investing in grey market for unlisted shares:

Look at all these headlines first.

What is the common term being used in all these headlines? It is the GMP (Grey Market Premium).

What is GMP and why is it important?

GMP is the extra amount investors are willing to pay for a company’s shares before its Initial Public Offering (IPO) officially lists on the stock exchange. It acts as an informal indicator of expected listing gains.

If the market sentiment is positive and demand is high, the GMP goes up (indicating investor sentiment that it will list at a premium). On the other hand, if it’s low, the premium drops or turns into a discount. The price agreed upon is what turns out to be the IPO grey market premium (GMP).

GMP= Grey market price - Official issue price

For example: If a company’s IPO issue price as per its price band has been set at Rs 100 and its shares are trading at Rs 150 in the grey market, then the GMP comes out to be Rs 50 (Rs 150-Rs 100), implying that the investors expect the stock to list around the Rs 150 mark and hence expect around 50% listing gain when the company goes public.

Now you may wonder why the GMP is important? Well, the GMP acts as an indicator of investor interest and can help estimate possible listing performance. It also influences retail participation in the upcoming IPO of the company ahead of the three-day window when the official subscription opens.​

However, keep in mind that the GMP is based on the unofficial price and is speculative, so the actual listing price may differ based on market volatility, sentiment, or fundamentals, making investor research imperative before deciding to invest in unlisted shares.

Next, let’s talk about the difference in the share price before listing (i.e. in the grey market) and after listing (i.e. after the IPO), why the mismatch happens.

Pre-IPO vs Post-IPO Price Dynamics-Some Hits & Some Misses

Let us first look at the unlisted vs listed share price of some companies whose shares were traded in the grey market and later saw a dynamic shift in the price once they got listed post the IPO.

What happens to unlisted shares after the company goes for IPO?

Firstly, as the above table shows, when the listing price post-IPO turns out to be higher than what investors paid for the unlisted share price, then it's a profit for them. On the other hand, if the listing price turns out to be lower, then it's a disappointing loss.

But, but, but, a gain or loss does not realize until you sell the share. So, irrespective of the listing day price, you, as a holder of unlisted shares of a company, can anyway not sell them immediately after IPO and listing, since their is a mandatory lock-in period of six months. After the IPO takes place, those unlisted shares get converted into listed shares, and once the six month lock-in period ends, these can be sold on the stock exchange.

Why do such mismatches occur between the listed and unlisted share price?

The above mentioned cases (in the table) show how often there is a mismatch in the unlisted share price of a company vs the price upon listing. It can either be a bumper listing day profit or a disappointing loss for the pre-IPO investors.

But why does this mismatch happen?

There are multiple factors contributing to it:

1. Sentiments v/s Fundamentals: Unlisted shares trade in the grey market through informal broker networks and limited participants. In such scenarios, the trading and price quotations ride on sentiments and expectations, and are more of a speculative nature rather than being based on fundamentals. That is why the post IPO listing turns out to be different from the sentiment driven pricing that took place in the grey market amid the hype.

2. Information asymmetry: When a company is going for IPO, it has to get its DRHP approved by SEBI. The DRHP contains all the financial information about the IPO-bound company. But in case of grey market participants trading in unlisted shares of a company, they tend to not get full access to the company’s past history and financials until it files the DRHP. This is because unlisted companies are not legally bound to release quarterly results or audit reports. Moreover, even if they get access to the regulatory filings, credit ratings etc ahead of the IPO, such late discoveries can lead to abrupt shifts in market sentiment and thus affect the pricing.

3. Changing market conditions: Changing market scenarios/conditions between the grey market trading period and the IPO listing date can also affect the prices. Global policy changes such as US Fed announcements or geopolitical events can rapidly alter equity sentiment, whereas domestic economic changes such as the RBI MPC meeting or the government's budget announcement can swing investor mood within a few days.

How are unlisted shares taxed?

Capital Gains Taxation:

Short-Term Capital Gains (STCG): Shares held for ≤ 24 months: Taxed at income tax slab rate.

Long-Term Capital Gains (LTCG): Shares held for > 24 months: Taxed flat at 12.5% without indexation.

Dividend Income:

Dividends from unlisted shares are taxed as ‘Income from Other Sources’ at applicable slab rates. TDS is deducted at 10% if dividend income exceeds ₹10,000 annually.

5 risks you should not ignore before investing in unlisted shares

Before putting your hard earned money into unlisted shares of a company, it's extremely important to understand this long list of risks:

1. Liquidity Risk: A major challenge with unlisted shares is that they are harder to sell, as finding buyers/sellers is not easy due to relatively fewer participants in the grey market. This can take days or even months, depending on the demand-supply economics of the stock, which is why investors may be unable to liquidate shares when needed.

2. Regulatory Risk: SEBI had issued a warning circular in December 2024 wherein it cautioned investors to not engage with and undertake investment and trading activities through un-registered online platforms or apps which are facilitating transactions in unlisted securities (shares). You can read the detailed circular here.

And as recently as in October 2025, India's market regulator issued another warning against unlisted shares. SEBI has reportedly told mutual funds that they cannot invest in companies before they list, i.e. barring them from investing in unlisted securities.

This comes as a clarification for certain mutual funds which had sought clarifications from SEBI as to whether pre-IPO placements qualify as eligible investments. But India’s market regulator said only investments during the official IPO process are allowed, including large, early-stage anchor investments. So, SEBI has given this strict reminder to certain mutual funds who seemed to be inching towards the ‘lucrative’ grey market for unlisted securities.

3. Price Manipulation Risk: As the unlisted share’s price is set by the involved sellers and dealers and are tied to a lot of speculations and insider trading, there is no clear price discovery and high scope of manipulation. The prices can vary widely across different platforms and brokers. On the other hand, it is very hard to manipulate listed shares because of the transparent nature of trading and presence of regulatory protection.

A recent example of price manipulation is trading of Lenskart in the unlisted market.

Ahead of its much anticipated IPO, we checked Lenskart share price in the unlisted market through a few platforms, and you can clearly see the discrepancy in prices across different platforms:

4. Financial Transparency Risk: While IPO-bound companies need to compulsorily disclose all the relevant financial information in the DHRP and other filings to the SEBI, there is no such mandate for unlisted companies. They are not legally bound to release quarterly results until they announce IPO plans, and their financial reports can be delayed by up to multiple months or even years, which is a clear lack of transparency in disclosure of financials.

For example, as of October 2025, Byju's has not publicly released its official, audited financial reports for FY23 and FY24 yet. The publicly available last financial report by them (for FY22) was released after a delay of nearly two years, in 2024.

5. Lock-in Period Risk: Once a company goes public after the IPO, investors holding unlisted shares are typically subject to a mandatory lock-in period of 6 months. During this period you cannot sell your unlisted shares, hence restricting your ability to exit during the initial listing phase.

What does this grey market reveal about investor behaviour?

History shows that the high potential of returns attracts many investors to go ahead and dip their feet into the grey market for investing in unlisted shares. But why do they do so despite knowing the presence of so many risks?

Well, as far as what we have understood about investor behaviour, the following become the driving factors for investors to invest in unlisted shares of the grey market:

• Investors are drawn towards the grey market for early access/entry into the promising companies before their IPO. They hope to capture substantial listing gains and potentially high returns compared to post-IPO investing.​

• Even though grey market prices are only reflective of strong investor sentiment based mostly on hype or buzz rather than verified fundamentals, retail investors tend to extrapolate positive news or brand value, which reflects in the GMP (grey market premium).

• The interest and participation in the grey market also shows investors’ willingness to accept higher risk of illiquidity, lack of transparency, and valuation uncertainty, in a bid to diversify their portfolio with high growth potential companies that are not yet listed.

• There is a common misconception that before a company lists, one can invest in its shares for a cheaper price. In reality, that’s not how it works. But that’s the notion that a lot of retail investors have.

Overall, the grey market reveals a mix of optimism, speculative behavior, and risk-taking appetite for investors, highlighting both opportunities and caution for investors in India's unlisted share ecosystem.

Is it illegal to invest in unlisted shares through platforms in India?

For you, as an investor, it is not actually illegal to invest in unlisted shares.

Transfer of unlisted shares between known parties is not illegal, as per SEBI, but on the other hand, apps or platforms that act like a public marketplace and facilitate broader level of trading or public offers in unlisted public-company securities without SEBI’s authorisation are treated as violation of the law, according to SCRA (Securities Contracts (Regulation) Act, 1956 and SEBI Act, 1992.

As per the latter’s Section 12(1) "No stock broker... or such other intermediary who may be associated with securities market shall buy, sell or deal in securities except under, and in accordance with, the conditions of a certificate of registration obtained from the Board".

This implies that brokers or platforms facilitating unlisted share transactions potentially fall under "such other intermediaries associated with the securities market" and would require SEBI registration, which they currently don't have.

So if you, as an investor, still decide to go ahead to transact with such unathorized brokers or platforms, there is no investor protection, grievance redressal or compensation in case any form of scam or fraud happens.

How can you invest in unlisted shares?

If you are interested in investing in unlisted shares, then don’t worry, it’s not rocket science. The only key thing to remember is to choose a trusted and genuine platform as the unlisted share space is unregulated and does not come under the purview of SEBI.

Here’s our detailed blog on how to invest in unlisted shares: https://blog.thealtinvestor.in/navigating-the-world-of-unlisted-shares-and-grey-markets

SEBI’s big announcement on the launch of pre-IPO trading platform

Just a couple of months ago, India’s market regulator SEBI’s chairman Tuhin Kanta Pandey had floated the idea of piloting a regulated pre-IPO trading platform in India. The platform, which would allow trading in the short window between allotment and listing, is expected to test to what extent India’s thriving grey market can be drawn into the regulatory system.

From unlisted company’s price discovery, disclosure norms, to the way investors approach IPOs, the proposed pre-IPO trading platform would demand a shift in more ways than one, but the main aim behind this move by SEBI is to reduce the mismatch between high pre-ipo premiums of unlisted shares and the post-listing performance which kills the hype.

As of now, we need to wait and watch to see when the launch of this pilot project for a pre-IPO trading platform takes place, and what role it turns out to play in this ecosystem.

Conclusion

By now I am sure you must have understood at least one thing pretty clearly. Unlisted shares may seem like a shortcut to earn some big bucks, but they’re a game of very high risk and low liquidity.

While the potential upside can be tempting for many investors, the lack of transparency, regulation, and exit options make them a risky bet. Until SEBI comes up with some regulations for this space, investors must tread carefully on this path.

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Please note that this is an opinion blog and not official research advice. This blog aims to promote informed decision-making and neither encourages nor discourages you from investing in any asset class, deal or platform.