Zerodha CEO Nithin Kamath has sounded a strong warning about the dangerous trend of retail investors gambling on pre-IPO companies through unlisted markets. On Friday, the founder of India's largest stock brokerage expressed serious concerns about the growing speculation in grey markets as IPO activity heats up.
The Rising Danger in Unlisted Share Markets
In a detailed post on social media platform X, Kamath described hearing what he called phenomenally stupid stories emerging from the grey market space. He revealed that investors are blindly betting on so-called pre-IPO companies with unrealistic expectations of massive returns.
The Zerodha CEO specifically highlighted how greed is clouding investor judgment, causing them to ignore critical realities about these investments. These unlisted shares typically come with massive price markups ranging between 100% to 500%, along with ridiculous commission structures and terrible pricing terms for retail participants.
Why Pre-IPO Investments Are So Risky
Kamath pointed to the fundamental risk that many investors are overlooking. There have been numerous instances where the final IPO pricing ended up lower than what investors paid in the unlisted market. This scenario completely wipes out potential gains even before the official listing occurs.
The situation has become so concerning that platforms are now aggressively pushing these investments through WhatsApp blasts and other marketing tactics. Kamath expressed surprise at how popular the unlisted share space has become, noting that colleagues showed him platforms sending WhatsApp forwards to promote these risky investments.
Investor Reactions and Market Concerns
The warning sparked significant discussion among social media users, with many echoing Kamath's concerns. Several respondents described the current frenzy as legalized gambling rather than sensible investing.
One user pointed out that people are treating unlisted shares like lottery tickets, hoping for doubling their money on listing day. Another noted that pre-IPO investments might make sense for institutional investors with proper pricing power, but not for retail investors paying 300-500% markups.
A third observer highlighted the fear of missing out (FOMO) psychology driving this behavior, noting that most investors don't realize they're buying at peak valuations with zero downside protection. Several users called for regulatory intervention, suggesting that SEBI should ban these practices and penalize family offices whose shares enter the market for selling.
The collective concern emphasizes that the risk-reward equation in pre-IPO grey market investments is heavily skewed against retail investors, who often enter at valuations higher than the IPO itself.
