How Investing Became Easy: From Listed Stocks to Unlisted Stocks Through Technology

In the early days, investing was a straightforward, albeit narrow, game. For retail investors, the primary options were listed stocks. Companies with solid track records, backed by established exchanges, became the obvious and, more often, the only choice for risk-averse retail investors.

The mindset was simple—if it's not listed, it isn't worth the investment. But times have changed dramatically, thanks to technological advancements and the evolution of financial markets.

We now live in an era where you can start investing with just one share, even in unlisted companies.

How did we get here, and what does the future hold for retail investors in India?

Let’s break it down.

The Journey from Listed Stocks to Unlisted Shares

Initially, the investing landscape revolved solely around companies listed on exchanges like the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).

Listed stocks provided transparency, liquidity, and the perception of safety, making them the first choice for retail investors.

However, as India's economy grew, so did the appetite for diverse investment opportunities. This shift saw the rise of Initial Public Offerings (IPOs) as a popular way to invest in companies before they got listed. IPOs provided retail investors with a golden opportunity to enter early and potentially gain large returns once the company’s shares began trading publicly. According to data from SEBI, more than 60 IPOs were launched in India in 2021, raising over Rs 1.3 lakh crore, a figure that shows the massive growth in IPO participation.

But the story didn’t end with IPOs. Investors began exploring opportunities even before IPO listings, giving rise to pre-IPO investments.

This stage allowed savvy investors to access a company's stock while it was still private, tapping into potentially larger returns as companies neared their public listing. Yet, these options were mostly limited to institutional investors and High Net Worth Individuals (HNIs), leaving the average retail investor out of the loop.

Enter Technology: Democratising Unlisted Shares

The real breakthrough for retail investors has been the technological evolution that made investing in unlisted shares as easy as buying listed ones. Platforms like UnlistedZone, Grip Invest, and Stock Exchange for Unlisted Companies (SEUC) have democratized access to unlisted shares. Today, even a small investor can buy a share in a pre-IPO company or even in a startup yet to hit the public market.

In the past, gaining access to such investments was complex, cumbersome, and required significant capital. Thanks to fintech platforms and blockchain technology, these barriers have crumbled. Investors can now buy a stake in early-stage companies or mature but unlisted enterprises with minimal investment.

The Growing Role of Fintech Platforms

Platforms like Smallcase and Zerodha have further streamlined the investment process. For example, Zerodha, one of India’s largest stockbroking platforms, has revolutionized how retail investors participate in the market by offering easy access to not just listed stocks but ETFs and mutual funds as well. As of 2023, Zerodha boasted more than 12 million active users, a testament to the power of technology in breaking down barriers.

Fintech innovations have not only simplified the process but also brought in a high degree of transparency. Investors can now access real-time data, comprehensive reports, and forecasts, giving them the tools to make informed decisions.

Retail Investing: The Future

So, what does the future hold for retail investing in India? If current trends continue, we are likely to see even more innovation in the space, with new ways to invest in both listed and unlisted stocks.

1. More Retail Participation: India is on the verge of a retail investing revolution. Currently, the retail investor base is small compared to developed markets. According to NSE data, as of 2023, only about 6% of India’s population is directly invested in equities. Compare that to over 50% in the U.S. The gap is evident, but it also points to immense potential. The next few years could see millions more Indians participating in the stock market, driven by easier access, education, and improved financial literacy.
2. Ease of IPO and Listing Process: The IPO process in India is becoming more seamless, thanks to digitization and regulatory changes by SEBI. With initiatives like the Unified Payment Interface (UPI) for IPO applications and T+2 settlement cycles (soon to be T+1), the process of investing in IPOs is becoming incredibly efficient. It's likely that the number of IPOs and pre-IPO investment opportunities will increase, giving companies easier access to public capital markets. In 2023 alone, SEBI approved over 60 DRHPs, a clear indication that the IPO pipeline is strong.
3. AI & Blockchain to Further Simplify Investing: Artificial Intelligence (AI) and blockchain technology are likely to take center stage in the coming years. AI will assist in predictive analytics, enabling retail investors to make data-driven decisions, while blockchain can ensure transparency and security in unlisted share transactions. This would boost confidence among retail investors to venture into unlisted stock markets, further driving growth.
4. Tokenization of Shares: The concept of tokenizing assets, including stocks, is gaining traction. Through blockchain technology, shares can be tokenized, making it easier to trade fractional ownership of companies. Tokenization could be the next big thing for both listed and unlisted shares, reducing entry barriers even further.

The journey from listed stocks to unlisted shares has been transformative, and technology has been the driving force behind this change. What once seemed exclusive to big investors and institutions is now accessible to anyone with a smartphone and an internet connection. Retail investing in India is on the cusp of explosive growth, and as the barriers to entry continue to fall, more Indians will take part in this revolution.

The future looks bright—not only for retail investors but also for the companies that will gain access to a more diverse and engaged pool of shareholders. As technology continues to evolve, it will redefine the way we think about investing and make it easier for anyone to become a part of India’s financial growth story.

Follow Ajay Kumar for more such content around startups , business and finance.