Several scrips rose 15-27% in 2 months: Unlisted stocks see their own bull rally

Several unlisted shares traded offline through select brokers have risen sharply between 15% and 27% in the past two months amid the buoyant secondary market outlook.Some of the gainers include Reliance Retail (up 22%) and Tata Technologies (27%).A report in March this year by foreign brokerage CLSA said that it sees a good chance of a Reliance Retail initial public offer in the next 12 months. RIL said on Friday that the board of directors of Reliance Retail had approved a proposal to reduce its equity share capital. Reliance Retail said shares held by shareholders other than promoter and holding company will stand cancelled and extinguished.

The market regulator recently gave its nod to the IPO of Tata Technologies, the first public issue from the Tata Group stable after almost two decades.Oravel Stays, which operates hospitality tech firm OYO, has rallied 17% in the last two months. In March, the company pre-filed its offer documents with the market regulator and may launch its public issue around Diwali this year, according to reports.Other stocks that have rallied include Sterlite Power Transmission (19%), Hero Fincorp (16%), Ixigo (14.5%) and Studds Accessories (8%).”Unlisted stocks invariably start to rally when there is an uptick in the secondary market. As hopes of an IPO for companies in the unlisted space revive, investors start to bet on these names,” said G Chokkalingam, founder and head of Research at Equinomics Research.

“India’s benchmark indices.have soared over 10% in the past three months. With the listed markets outperforming, the unlisted markets have shown remarkable growth. The surge in Indian equities is a reflection of the strength and potential of the economy,” added Manish Khanna, co-founder at Unlisted Assets.The past few weeks have seen a number of companies — ideaForge Technology, Cyient DLM, Synoptics Technologies and Senco Gold — tap the primary market. Shares of leading drone maker ideaForge on Friday got listed at `1,305 apiece on BSE, a premium of 94%.

Experts caution that investors should be mindful of valuations when investing in unlisted firms. “Investors should see if there is a comparable business or company in the listed space already. If the company in the unlisted market is trading at 5-10% premium to the secondary market companies it is okay but if it is at a huge premium, investors should offload the unlisted stock before the rally fizzles out,” Chokkalingam said.

The Nifty rallied 10.5% during the April-June quarter and was the 4th best performing index after Brazil (+15.9%), Japan (14.2%) and Russia (14.1%). The Nifty’s consensus FY24/FY25 earnings per share(EPS)saw a downgrade of 1.0%/1.4% while most EMs saw a bigger 4%-9% cut. India is still expected to deliver the highest two-year EPS growth among the top 19 equity markets in the world.The Nifty’s performance has taken its 12-month forward PE from 17.4x at the start of the quarter to 18.6x, which implies a 17.7% premium to its average.”The difference between India’s 10-year yield and 12-month forward consensus earnings yield has risen to 1.7 percentage points, which is still below the danger zone of 2.0 ppts. Equity valuations versus debt are much more extended in DMs like the US, France and the UK,” said a recent report by CLSA.