Understanding the Impact of Economic Cycles on Unlisted Shares

Summary

In the world of investing the big stage belongs to the stock exchanges like NSE and BSE where companies perform under the spotlight everyday.
But behind the scenes away from the flashy lights and hypes there is something which is quieter and more exclusive - The Unlisted Market of India.
Here, the players are different:
Ambitious Startups chasing their first funding.


Mature and Private Businesses building empires without the noise of daily market swings.


Pre-IPO Giants preparing for their grand debut in listed markets.


Think Reliance Retail, HDB Financial Services, Tata Technologies names that investors dream of investing before the world notices.
In this arena, patience is your ticket, research is your script and the timing is everything.
Because in the unlisted world the real story often begins before the retail public notices.

Impact on Unlisted Shares During Economic cycles

Expansion Phase (Boom Period)
What happens in the economy - Businesses grow fast, profits rise and investors get excited to invest.

Impact on unlisted shares:

• Higher Valuations : Because there’s more demand even when companies are valued at higher prices and even if their profits haven’t grown as much.
  
  
• Easier Fund raising : Startups and private companies can raise money easily at premium prices during these times because of high money flow.
  
  Example:
  In 2020-2021, companies like Paytm and Nykaa saw their pre-IPO share prices shoot up because the investors were looking for high growth opportunities.

Peak Phase (Over Valuation)
What happens in the economy - Growth is at its highest point but valuations of the companies may feel stretched.

Impact on unlisted shares:

• Overvaluation Risk: Prices are at their highest level and sometimes beyond the justified valuations.

• Investor Move: Smart investors start selling and locking in their profits.

• Speculative Buying: New or inexperienced investors enter late beacuse they think prices will keep rising and maximum times get losses.

           Example:
           In late 2021, startups like OYO and Byju’s traded at record-high unlisted valuations, only to face sharp drops when the market corrected in 2022.

Contraction Phase (Recession or Slowdown)
What happens in the economy - Businesses slows down, spending drops and companies income falls.

Impact on unlisted shares:

• Falling Valuations: Share prices of private companies fall because the investors don’t want to pay higher prices anymore.
  
  
• Liquidity Crunch: Selling your unlisted shares becomes hard you may have to sell them on big discounts to find buyers.
  
  
• Funding Slowdown: Investors become picky and only strong businesses get funding.

          Example:
          In 2020 Covid times the global markets slowed and valuations of companies dropped sharply.

Trough Phase (Bottom of Cycle)
What happens in the economy - This is the lowest point growth becomes slow but signs of recovery start appearing.

Impact on unlisted shares:

• Best Entry Point: Prices are the lowest so smart investors buy now.
  
  
• High Risk and High Reward: Not all companies will survive but the survivors can grow massively in the next cycle.
  
  
• Long term Potential: Buying quality companies now can give multi bagger returns when the economy recovers.
  
  Example:
  Investors who bought quality companies in 2020 before the boom got huge returns in 2025.
  

Comparative Analysis: Unlisted vs Listed Companies

Strategic Considerations for Investors in Unlisted Shares

Entry Timing -

• Entering at the right time in any security is 50% of the work done.
  
  
• The best opportunities of buying often arise during economic slowdowns or when a company is in an early but proven growth phase.
  
  
• Lower valuations and reduced competition from other buyers can provide an attractive entry price for any company.

Company Evaluation -

• Analyse the financial health, consistent revenue growth, profitability and debt levels of the company.
  
  
• Understand the business model(what business the company does) and see if it is sustainable and scalable or not .
  
  
• Do the management analysis because proven leadership increases the chances of success of the company.

Diversification -

• Spread your investments across multiple companies, industries and with different growth stages.
  
  
• Diversification reduces portfolio risk because loss in one investment can be offset by gains in other companies.
  
  
• A balanced approach could include both mature private companies along with high growth startups.

Exit Strategy -

Plan your exit before making the investment.

Possible options include:

• Pre-IPO sale to other private investors through unlisted platforms.
  
  
• Sale during IPO listing often liquidity is the highest at this time.
  
  
• Post-IPO sale, if you want to hold further for long-term growth.
  
  

(Understanding the lock-in periods and legal restrictions on selling shares are important because If you hold pre IPO shares until the company lists then you cannot sell them immediately on the IPO date. SEBI regulations impose a 6 month lock-in period for such shares means you must wait before selling them on the stock exchange.
However, you can sell these shares before the IPO in the private market by finding a buyer and completing the necessary transfer formalities from unlisted shares platform.)

Risk Management -

• Avoid overvalued and overhyped companies without proven performance they can be very risky for your portfolio.
  
  
• Check everything important about a company: facts, numbers, risks, people, legal status and exit options before you invest any money.

Conclusion

In the world of investing the public markets are the grand stage but unlisted shares are where the real story often begins. In this the plot develops quietly, away from the noise of daily price swings and the biggest transformations happen long before the spotlight of an IPO.

The rewards can be remarkable because we can have early access to future market leaders, the potential for multi-bagger returns and the satisfaction of spotting a winner before the crowd. But every great story comes with risk. Low liquidity, regulatory lock-ins and the unpredictability of business cycles mean that only disciplined and well prepared investors succeed in this arena.

The key to invest is clear: Enter at the right time, back strong companies, spread your risk and plan your exit before your first investment. If you can do that with patience as your strongest ally then you’ll be ready when the curtain rises, when the market finally sees the value you spotted long ago. This is where Sharescart.com comes, where the next big story often begins long before the world is watching.