How Unlisted Share Prices Are Discovered When There Is No Live Order Book
Reviewed by Kanishk Dev Bangia, NISM Series XV Certified Research Analyst
Last Updated: May 2026 | Reg. No: NISM-202300182946
When you look at the share price of a pre-IPO name in at least two or three different sources on the same day, you must have seen that these figures do not tally. For example, one source cites â‚ą720; another source states â‚ą745; a third one puts it at â‚ą735; and your own acquaintance who completed a trade yesterday paid â‚ą728 for the shares. All these prices could potentially be right. What you see are multiple readings of a market which does not even maintain a real-time order book.
What follows here is an explanation of how the price discovery process works in India as far as the unlisted securities are concerned, how the dealer networks help form this price, why we observe a spread in the same-day prices, why the benchmarking techniques such as rule 11 UA of SEBI, ICAI valuation guidelines and secondary transactions comparables fit in, why the price fluctuates from one month to another, and why a sensible buyer needs to read between the lines of dealer quotes.
TL;DR - Best for: For first-timers and intermediates who keep asking why prices differ between dealers and between weeks - Min investment setting: This essay deals with price discovery, not investing amounts – check out UA’s unlisted share buyer’s checklist for ticket size norms - Lock-in: Of little relevance to this discussion (covered in a separate essay by UA on lifecycle and SEBI regulations) - Main point: There isn’t one person setting unlisted share prices; rather, unlisted share prices emerge from the functioning of a distributed network of dealers using fair value benchmarks, where same-day spread is a feature, not a bug - Highest risk (1 line): Taking any individual dealer’s price as “the” market price – a serious buyer uses at least two to three dealer quotes and a valuation benchmark
What “price discovery” actually means in a market with no exchange
Price discovery in listed equity is mechanical and continuous. Every trade that occurs on listed stocks is registered on the exchange and receives a timestamp that updates the last-traded price of the share in real time. All viewers of the screen see the exact same price at any one point in time. This price is derived from the order book (which refers to the list of limit orders of the stock), where the midpoint of the best bid and ask becomes the price.
Price discovery in the unlisted market, however, is very different. Firstly, there is no exchange. Secondly, there is no real-time order book for viewing by participants in the trade. Finally, trades occur off-exchange, using the off-market instruction system of CDSL or NSDL. Essentially, each trade occurs independently and establishes the price of each trade on that day with that particular buyer/dealer and that particular quantity traded.
What then is the definition of price discovery in this context? Price discovery refers to the entire process – which combines elements of market pricing, benchmark anchoring, and negotiation – through which a workable price of transaction is derived for the specific dealer-buyer combination on any given day. The price you eventually trade at represents the outcome of this process rather than an input into it.
Four main inputs are utilized by the system, roughly in terms of their immediacy of impact on the day’s price quote: dealer-network last traded prices, secondary transaction comparables, fundamental benchmark valuations, and news/IPO catalysts. These will be explained further in the next four sections.
Input 1 — The dealer-network last-traded reference
The primary driver of the current quote is the last executed deal in the security in question. Dealers have private communication networks via telephone, WhatsApp groups, and broker chat forums where deals made during the course of the day can be disseminated in just a few hours after being completed. By midday, every dealer involved in the stock in question would know within 1-2% what the other dealers are quoting and what transactions were made on the preceding trading day.
The last executed deal is not an official figure. No Bloomberg terminal publishes such information. But in effect, it serves the same purpose: it forms the basis for quotes for the day. If there was a deal made at ₹720 last night, then dealers would assume that all their quotes for today would range between ₹715 and ₹735 – and anyone quoting outside this narrow band would need justification for the discrepancy.
What does this mean for a retail investor? Well, if in the same chat window, asking two dealers, you get bids for â‚ą728 and â‚ą742, then there is something structurally different between the dealers in their quotes. This difference might be attributed to one or both of them pricing based on liquidity or reference rates, but they may not be suspect per se. But if there is a 10%-plus gap between them, it is either due to a misquote, stale inventory, or padded markup; this is definitely something worth checking further.
The best way to do so: Just ask the dealers in clear terms, “At what rate have you sold this share previously, and in what size?” If they give you a clear indication with dates and range of amounts, that should help clarify things. The answer that avoids this question is a clue as well.
Input 2 — Recent secondary-transaction comparables
Aside from the regular dealer chain, the price level is underpinned by the transactions completed in the preceding period, usually coming from three sources: ESOP/trust buyback transactions, early stage investment exit transactions (venture capital, founder selldowns), and inter-dealer block trading. Though none of these transactions appear on the public tape, their approximate prices become known to the market through advisor channels, secondary platform listings, and corporate disclosures.
A transaction where the VC fund sold 20 lakh shares of an IPO-pre company at ₹680 two weeks back becomes extremely significant for today’s price quote, in a way that no mathematical model could replicate. Such a transaction conveys that a price level of ₹680 was achieved in the market on a substantial volume. The present-day quote for retail lots will typically trade 3–8% above that level (retail premium + dealer margin), but cannot go too much higher without any new development justifying such action.
Similarly, the reasoning also holds for ESOP-trust trades. In situations where the company initiates an internal ESOP liquidity round at a set price to its employees, the price offered is lower than the open secondary price (since the company is the counterparty and sets a floor, not a bid price in a market) – but it is still a good lower-bound reference. The open secondary trade is priced at a premium of 10%–25% compared to the ESOP-trust price based on how imminent the IPO looks.
From a third-party investor perspective, the important lesson from this is to inquire from the dealer about recent secondary activity. An authentic dealer would mention at least one or two comparable deals in their presentation – not as a price quote, but simply as a validation that they are grounded in reality.
Input 3 — Fundamental fair-value benchmarks
Even in absence of any exchange, all unlisted shares have the benchmark of their fair-value as defined within the Indian legal framework. Three frameworks stand out in relevance in 2026:
Rule 11UA (Income Tax Act): For the purpose of income tax calculation, the fair market value of unquoted equity is calculated under a prescribed formula — either the book value approach with adjustments (Rule 11UA(1)(c)(b)), or by discounted cash flow method (Rule 11UA(2)). When companies issue new shares to non-resident investors, or in regulated entities, they can safely assume this number as the floor below which they trigger either Section 56(2)(x) (income for buyer as gift-in-kind at a discount) or Section 56(2)(viib) (premium exceeding fair value as excess, pre-2024 amendment for startups).
ICAI valuation standards: Institute of Chartered Accountants of India (ICAI) publishes Indian Valuation Standards (IVS) defining the methodologies to be followed by the registered valuers in valuating unquoted equity for statutory requirements like valuation for IPO offer documentation, ESOP
valuation, grant-price determination, and M&A considerations. The usual practice combines income-based (DCF), market-based (multiples of listed peer companies), and asset-based (NAV) methods in a weighted approach.
Pricing guidelines per RBI rules (FEMA NDI Rules). In cases of cross-border investments in unlisted Indian stock, the RBI’s Foreign Exchange Management (Non-Debt Instruments) Rules mandate pricing of securities based on fair value as assessed by either a SEBI-registered Category I Merchant Banker or a Chartered Accountant. This puts a floor to the price paid by a foreign investor (or a ceiling for the domestic seller receiving payment from a foreign buyer).
These benchmarks are not meant to be moving around tick-by-tick according to the market price, but they certainly provide a hard rail for the extent to which the market price can veer away from the fair value estimate without inviting questioning from tax inspectors, auditors, or regulators. An unlisted share market price that is 5-10% above a fair value estimate is reasonable. However, a market price that is 50%+ above book value plus multiple comparable firms is certainly overstated.
Input 4 — News flow and IPO-pipeline catalysts
Input #4 is perhaps the most volatile — and it is what creates the visible price swings from one month to another. News that affects an unlisted stock can influence the price quote in three distinct ways:
DRHP submission or withdrawal. Upon submission of the Draft Red Herring Prospectus (DRHP), the unlisted rate tends to rise by 8–20%, as the market recognizes the increased probability and predictability of an upcoming initial public offering. On the other hand, delays in going public and subsequent withdrawals lower the quoted rate significantly.
Tailwinds or headwinds for the industry. Positive regulatory developments that impact the sector (e.g. announcements on capex spend in the transmission industry for an unlisted power company; tax optimization regulations for unlisted fintech) get reflected in the unlisted rate shortly after. Sector-level negative developments have a similar impact on the price quote, but in the opposite direction.
Anchor-investor positions. Once a credible anchor (whether a sovereign wealth fund, a domestic mutual fund, or a strategic corporation) places an investment at a specific price during the pre-IPO rounds, then it will serve as an extremely useful benchmark. Quotes made by dealers will reset around this number.
The listing of a credible peer company. In case of another firm in the same industry undergoing IPO and pricing itself in at a particular multiple, then all other comparable firms that remain unlisted can expect their shares to be re-rated within a week of time. Either way - if the IPO is good then they move up, while if the IPO is bad then they move down.
Conclusion for potential buyers: Do not rely on last week’s quotation. Unlisted markets may be somewhat slower than listed markets, but they are far from stagnant. If you are going to take your time making a purchase decision, you need to update your rate at least once per week.
Why same-day spreads exist (and which spreads are normal vs. suspicious)
What would be the justification for quoting different prices on the same stock by two dealers within the same network? There are four explanations as to why it would be structurally justified for dealers to have 1–5% bid-offer spreads on the same day:
1. Different margins by dealers. Dealers have different operational cost structures and captive buyers that may be quoted by them. A dealer with lower overhead costs will offer a tighter quotation than a dealer who requires a bigger team and higher acquisition costs. This is the only difference between two business models, and a difference in margins of 1–2% makes sense.
2. Different inventory positions. If a dealer has a position of 50 lakh shares in one particular stock, it needs to offload inventory quickly and will offer a slightly tighter quote to achieve that. In case of a dealer without inventory, who quotes the stock from his ability to buy from the network, there is always a risk factor involved.
3. Lot size and ticket size. A deal offered on a ticket of â‚ą50,000 is fundamentally different from a deal offered on a ticket worth â‚ą10 lakh. The former involves higher cost per rupee to process and, therefore, a broader quotation. The latter may well have a more compact quotation, sometimes even tighter than the last-traded reference on dealer networks, since the dealer is prepared to earn less percentage-wise but make up for it in higher absolute rupees.
4. Timing of last traded reference. All dealers are not referencing the same last-traded rate. While one dealer has just completed a trade at â‚ą732 per unit an hour ago, another may be referencing a last-traded price of â‚ą720, which had been posted a couple of days back. There is bound to be a difference till the new print permeates into the system.
Definition of structural normality: 1-5% day-to-day spread in the same share between two to three reasonable dealers.
Definition of what requires further questioning: 5-10% day-to-day spread without a specific cause – either dealer works on old references, pushes the quotes aggressively, or deals with some inventory problems that should be clarified.
Definition of what is a red flag: >10% day-to-day spread or one price quoted that is well above the general dealer network range. In any case, someone in the deal uses pricing power excessively or one party does not have enough knowledge of the market to make correct decisions. In both cases, the buyer’s next step should be to triangulate with another dealer before proceeding.
Best check that a retail buyer can make: get two quotes from different dealers on the same day in a certain share, ask each of them about their latest transaction rate, and create a range yourself. Your buying price should fall within that range.
How the price moves between two months (and what to read into the move)
Taking into consideration the same share price for the same unlisted share two months apart, there would be significant movement in price — usually by 10%-30% or more, in either direction. Knowing how to interpret such movements is the distinction between a good buyer versus a reactionary buyer.
When there is movement upwards in share price of 10%-20% in two months’ time, this would be due to any of the following: a DRHP filing rumor or the actual filing; industry headwinds; anchor investor cues; or the listing of a peer company at a healthy price multiple. When there is a catalyst for the movement, then the upward movement is justified. When there isn’t a catalyst, the action is based purely on momentum — and momentum actions typically unwind themselves.
An action downward of 10-20% in two months can be explained by either an IPO timing issue, an industry overhang, some regulatory surprise, a peer IPO underperformance, or a reduced demand from the dealer network. The appropriate reaction to a bearish action is the same as to an bullish one: find the catalyst. An action that is based on fundamentals is solid, and the new price becomes your new normal. On the other hand, if the action is due to short-term dealer network sell-off, the stock price might come back up.
What the price movement does not represent: it is neither a buy nor a sell indicator. The reason a pre-IPO stock falls by 15% does not mean that “it is now cheap” — this represents a change in circumstances, and what needs to be asked is what has changed and whether there are any structural consequences for your thesis. Conversely, the fact that a pre-IPO stock rose by 15% does not necessarily mean that “it is now expensive” — perhaps the market simply priced in some information that you did not consider yet.
The useful reading approach: whenever you look at a pre-IPO interest rate, always take a look at the news on this firm or industry during the last two to four weeks. Otherwise, the figure is of no use.
How a disciplined buyer uses dealer quotes
Putting all four inputs together, here is the simple framework a disciplined buyer uses to read any single dealer quote without being led by it:
Step 1 – Benchmark against the dealer-network last trade. Ask the dealer: “what is your most recent trade in this security, what price and size and what was the date of trade?” A good operator answers you. This will help you identify where this dealer belongs to within the spectrum of the dealer network.
Step 2 – Benchmark against an independent dealer. Obtain a quote from another independent dealer for the same security, same ticket size, and same settlement period. The quotes must be within 1-5% of each other. If yes, you can proceed with that. If they are in a band of 5-10%, take a third quotation. If in excess of 10%, be very careful.
Step 3 – Benchmark against fair valuation. Identify the most recent annual report of the company (if filed; else DRHP). You need to assess the company’s book value per share, its recent round price, and its fair valuation based on the multiple of comparable peers. The price quote you receive should lie at a justified premium over its book value and should fall within its multiples range. A price which lies 50% over multiples range needs justification.
Step 4 – Determine the trigger behind the recent move. If the price has moved 10% or more recently, understand the reason behind the move – whether it was a filing of the DRHP, a news, a development in the industry. Without a trigger, the move is momentum and is vulnerable to reversal.
Step 5 – Add a margin of safety to the entry price. Entries into the pre-IPO market come with many risks – time, lock-in (SEBI ICDR Regulation 16), legal, counterparty – so that the only thing investors can control is the entry price discipline. Investors paying closer to the low-end of the deal range have greater margin of safety than those paying closer to the high-end.
For the discipline related to the buyer process, visit how to buy unlisted stocks in India and the seven-point checklist that we publish for first-time buyers. For structural differences from listed equity, which alter the pricing discipline approach, see differences in structure between unlisted and listed markets on Unlisted Axis.
A worked example of triangulation
Concrete example to make things clear. Let us assume that you are looking at a pre-IPO name in the field of renewable energy. It is Tuesday, May 2026.
Your request to Dealer A, your usual primary dealer. Quote: â‚ą438 per share, lot size 200 shares, settlement T+3.
Your request to Dealer B, who is an independent secondary dealer. Quote: â‚ą452 per share, lot size 200 shares, settlement T+4.
Your observation of the spread of 3.2%, which is well within the usual range of 1–5%. You ask both dealers for their last traded price. Dealer A: "₹430, Friday, two lots of 500 each, corporate buyer." Dealer B: "₹445, yesterday morning, one lot of 200, retail buyer."
You get a feel for the feel of the transaction now. Dealer A is quoting more in line with a recent block deal done by corporate buyers (tighter spread, thin margin). Dealer B is quoting more in line with a recent print on the retail side (wider, recent). The fact that you are seeing quotes between 1–5%, both of which can be explained by a recent transaction, seems quite healthy.
Next, consider any secondary transactions that the company might have recently done. A venture capital fund did a deal two months ago for 30 lakh shares at ₹395 per share. Last ESOP trust round was completed at ₹360 per share. Comparable listed peer is currently doing a 14x multiple on the EV/EBITDA basis. Taking a discount of 15–20% from the listed multiple (standard illiquidity discount), your range should be ₹410-₹460.
These prices (â‚ą438 and â‚ą452) lie within the range. The texture is that of an ideal market. A print price of â‚ą430 for corporations and â‚ą445 for retails is another example of triangulation. You choose the range of â‚ą430-â‚ą450 for transacting, based on the tighter offer by one of the dealers who passes through all other checks on the counter-party.
Here is an application of the framework into practice. The figure on the dealer’s screen is just one end of the process and not the other.
FAQs
Q: How are unlisted shares priced in India? Unlisted shares in India are priced based on a decentralised dealer chain that starts from the most recent price at which the shares changed hands, comparable securities in secondary markets, fundamental value of the security as per Rule 11UA (as per the standards of ICAI), and any other developments, like DRHP announcements. There is no trading exchange or an order book – the trades are bilateral in nature and the “market price” can be defined only based on a consensus price of all dealers on any given day.
Q: Why do the prices vary between dealer websites for the same unlisted shares? The prices differ for the same unlisted shares on different dealer websites because of the difference in the latest deal price considered by dealers, different costs, different inventory positions, and different trade sizes. A differential of 1-5% on the same day is structurally valid. If the differential is greater than 10%, it signals triangulation before dealing.
Q: What is the fair value of unlisted shares? The fair value of unlisted shares is the estimated price that the shares will be traded among well-informed, willing parties using valuation methodologies as per ICAI guidelines (DCF method, comparable multiples, NAV). Fair value provides a base for the actual trading price, which generally trades in the range of 5% to 25% above the fair value price for pre-IPO shares, where the listing is imminent.
Q: How frequently do unlisted share prices change? Unlisted share prices are constantly changing among dealers on a daily basis, but the price quotations generally get updated once a week or as soon as there is a significant transaction. Events such as DRHP filing and news about the anchor investors can influence prices in real-time, but even otherwise, week-to-week changes in prices are generally limited to 1% to 3%.
Q: How reliable are the prices for unlisted stocks that are quoted by dealers? The prices of unlisted stocks quoted by dealers are reliable only if confirmed by another independent dealer and an objective benchmark of fair value — unreliable otherwise if based solely on the quote of one dealer. An unconfirmed quote leaves it uncertain whether the dealer is quoting in line with the network or padding the quotation. The practice here is to cross-quote — the error is to fixate on one quote.
Q: Is it possible to negotiate the price quoted by an unlisted stock dealer? It should normally be possible to negotiate down an unlisted stock price quotation 0.5-2% for retail lots, but up to 3-8% for larger trades. It will work if you already have multiple quotes and the dealer knows that you do — but negotiating unilaterally from an unconfirmed single dealer quote is tricky, because the dealer has all the pricing data and you don't.
Q: What impact does an IPO filing have on the unlisted stock price? An IPO filing, in particular, an application made to SEBI under the name DRHP (Draft Red Herring Prospectus) usually sees an unlisted stock price rise by 8–20% within days because of the dealer network’s repricing for the visibility, transparency, and institutional investor interest associated with such IPOs. If, however, the IPO is later cancelled or deferred, the stock gives up most or all of that gain.
Q: What are the differences between book value and unlisted market value? The book value of the share represents its per-share net value calculated based on balance-sheet figures – the difference between assets and liabilities, divided by shares issued. Market value stands for the price that the share sells for in the unlisted dealer network. Pre-IPO stock, whose prospects include anticipated earnings growth, trades at 3–10 times the book value – similarly to their listed peers.
Disclaimer: This is written for educational and informational purposes only. Nothing here constitutes investment advice or a recommendation to buy or sell securities. All data is sourced from publicly available information. Investments in securities markets are subject to market risks — please read all offer documents carefully before investing.
