Unlisted frenzy: Zerodha's Nithin Kamath warns retail investors as HDB IPO, CSK shares lure crowds; Sebi alert add to caution

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erodha co-founder Nithin Kamath has raised red flags over the growing retail craze for unlisted shares, warning that the risks are far greater than what most investors realise.

His comments follow a string of investor setbacks, including the HDB Financial Services IPO, where valuations crashed below unlisted trade levels.In a post on X, Kamath recounted how a wealth manager approached Zerodha to buy shares in one of its unlisted group companies with the intent of reselling them at a 50% markup. “The craze for unlisted shares like NSE, MSEI, and CSK is crazy,” Kamath wrote.“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,” he cautioned, as reported by ET.He pointed to HDB Financial Services as a recent example where retail enthusiasm backfired. Its IPO price band was set nearly 40% below the last traded price on unlisted platforms, burning many early-stage buyers. “You are better off investing in mutual funds than trying to pick unlisted companies,” Kamath added.According to Kamath, one of the biggest issues with unlisted shares is the absence of reliable price discovery.

Unlike regulated stock exchanges, where trades are transparent and reflect demand-supply dynamics, “unlisted shares are traded on unregulated platforms—with no oversight and often excessive markups and commissions,” he said.Liquidity is another challenge. Some companies have taken years to go public—NSE’s IPO, for instance, has been in the works for over a decade. Meanwhile, investors are stuck with illiquid holdings and limited performance data.

“Unlisted companies also make fewer disclosures than listed companies,” Kamath said, quoted the report.For further context, Kamath linked to a blog by Bhuvan, a researcher at Zerodha, which detailed how unlisted share platforms operate and the risks they pose.“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%.”The ET report noted that retail interest in these platforms has spiked post-COVID, driven by the pitch of identifying the next unicorn before it lists. However, several investors have faced significant losses. In 2023, Reliance Retail shareholders suffered losses of up to 60% after a share capital restructuring.The Securities and Exchange Board of India (SEBI) has also taken note. In December 2024, it issued a circular stating: “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.”Bhuvan concluded the blog post with a sharp reality check: “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.”