Understanding Direct Equity Investing

Over the years, several companies such as RBL Bank, Avenue Supermarts, Ujjivan Finance, and others have delivered strong value to early investors after successful public listings. Many of these companies were actively traded in the unlisted equity space before their IPOs, offering meaningful opportunities to investors who entered early.

Direct equity investing allows investors to participate directly in the ownership of businesses, either through listed equities or through carefully evaluated unlisted companies. For investors with the right risk appetite and understanding, this can serve as an additional avenue for portfolio diversification.

Unlisted Equity – An Emerging Opportunity

Purchasing unlisted equity through the secondary market has emerged as a relatively accessible way for investors to gain exposure to privately held companies before they are listed on stock exchanges. This segment offers an opportunity to participate in businesses at an early stage of their growth journey.

However, unlisted equity is not suitable for everyone and requires careful evaluation, patience, and risk awareness.

Potential Benefits of Direct & Unlisted Equity

• A novel investment option that aids overall portfolio diversification
• Opportunity to invest in emerging and new-age businesses at an early stage
• Potential for significant long-term growth if the business performs well
• Availability in smaller ticket sizes allows gradual portfolio building
• Limited short-term correlation with listed markets may result in relatively stable pricing
• Exposure to a wide range of unlisted small and medium enterprises

Key Risks to Be Aware Of

Direct and unlisted equity investments involve higher risk and lower liquidity compared to traditional investments. Investors must clearly understand these risks before investing:

• Price and valuation discovery in the unlisted space can be difficult due to lack of transparent market pricing
• Liquidity depends entirely on demand and supply; exit may be delayed if there is low market interest
• Transactions and pricing are outside the purview of regular stock exchange mechanisms
• Post-listing lock-in period of one year can expose investors to market volatility after listing
• Early-stage companies carry higher business risk, including the possibility of business model failure

Who Should Consider Direct Equity

Direct equity investments are suitable for investors who:
• Have a higher risk appetite
• Understand equity market volatility and business risks
• Can stay invested for longer time horizons
• Have adequate diversification across other asset classes
• Are willing to accept liquidity constraints

Our Approach to Direct Equity Advisory

At SLD Finance, we approach direct equity and unlisted equity with caution, research, and suitability assessment. We do not promote these investments as guaranteed or low-risk opportunities. Instead, we help investors understand the business fundamentals, risks involved, holding period expectations, and portfolio impact before taking any decision.

Direct equity is considered only as a satellite allocation, never as the foundation of a financial plan.

Higher potential comes with higher responsibility.
We ensure decisions are informed, not impulsive.