What Happens to Unlisted Shares After a Company Files DRHP
Reviewed by Kanishk Dev Bangia, NISM Series XV Certified Research Analyst
Last Updated: May 2026 | Reg. No: NISM-202300182946
There is nothing quite like a filing of the DRHP by a company when it comes to pre-IPO unlisted share visibility events. It is a big event because it makes an impact on the unlisted share price in days, it impacts the holder’s options of exiting, it starts the SEBI lock-in period ticking from listing onwards, and it impacts the level of information you have about the company. In case you hold unlisted shares of a firm which has filed its DRHP, or if you are considering investing in a firm about to do so – your action items will be very specific.
Here we take you through what a DRHP filing means, the changes in the unlisted share market at the time of filing and after that, the changes in the holder’s options of exiting the unlisted share, the way in which the ICDR Regulation 16 SEBI lock-in period ties in with the listing of the firm, and last but not the least, what should you be doing after a DRHP has been filed by a firm. Note that this framework is applicable to all sectors including financial services – the Tata Capital DRHP filing is a current example.
TL;DR - Best for: Unlisted-share holders where the company has recently filed for DRHP, and those potential investors who are assessing a deal based on the DRHP filing – Minimum investment: Same as pre-DRHP – lot sizes are usually of ₹50,000 to ₹1,00,000 in the dealer network - Lock-in period: SEBI ICDR Regulation 16 – six-month lock-in for pre-IPO shareholders who are not promoters, starting from the listing date (and not the DRHP filing date) - Core concept: Filing of DRHP creates a new information perspective (improved disclosure requirements and starting of the clock for IPO process) and also a new price perspective (revaluing at typical 8-20% higher prices), but not the six-month lock-in period – which is triggered only from the listing date - Greatest risk (one liner): Treating the filing of DRHP as a certainty for listing
What a DRHP filing actually is
Draft Red Herring Prospectus refers to DRHP. This is the document which an intending company will file with SEBI before floating its IPO in the market. The term ‘draft’ is important because while filing the draft DRHP, the company has applied to SEBI for review but has not received in principle clearance from SEBI yet, nor the issue is priced and offered for subscription.
All the information provided by the company inside the DRHP can be termed as the most complete public disclosure made so far by the company, including details about its audited financial position for the past three fiscal years along with stub period, segmental performance, comparison among peers, risks associated with the company, dealings with the management, status of ongoing litigations, approvals of SEBI, promoters' holdings and pledging positions, ESOP / Sweat Equity disclosures, use-of-money plan for the money raised from the IPO, tentative IPO size and type (Fresh Issue/Offer For Sale), Book Running Lead Managers, and lock-in period proposal.
The filing is made in accordance with the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, which are known as the "ICDR Regulations." The schedule VI of ICDR lays down the details of the information that needs to be provided. SEBI has set out a specific period within which it can raise any observations that the company will have to take care of before it gives out the "in principle" approval. The next step would be that the firm would file the Red Herring Prospectus (RHP), which is nothing but the DRHP with all the remarks from SEBI, indicative price band, and the IPO calendar.
For an unlisted shareholder or the evaluator, the DRHP filing marks the beginning of the IPO countdown, since at this point "the IPO is coming" actually has some document backing it up.
What changes in the dealer network on filing day and the week after
The unlisted-share rate of a company generally increases 8%-20%, mainly within the first 48 hours after the DRHP announcement on SEBI’s website, after the DRHP announcement. The increase is due to three factors working one above another:
Certainty of timing. Prior to DRHP, an IPO is “expected” to happen; the assumption of the timing of the issue varies based on whether you talk to dealers or analysts, and can range between 6 months and even 24 months prior to the listing. After the DRHP, the official clock of IPO begins ticking. The assumption now is “will list in 6-9 months after filing of DRHP, assuming SEBI clearance.” About 50% of the rate increase after the DRHP announcement is because of this increased certainty of timing.
Clarity of disclosure. Prior to DRHP, the information is based on annual report financials and possibly some quarterly information if the firm releases any. After the DRHP process, there are the audited financials with stub period details, complete risk factor disclosure, peer comparison figures, and break-up of funds usage. Information asymmetry between the dealer and the buyer decreases; both can rely on the same information source. Previously hesitant buyers enter the scene, thus creating a demand surge that raises the interest rate.
Positioning of institutions. Once the DRHP is in place, institutional investors (sovereign funds, mutual funds, family offices) begin positioning themselves ahead of the IPO. This positioning includes buying blocks of stock in the weeks preceding the listing. This positioning by institutions tightens up the market, especially for large block sizes. Pricing of retail lots follows block-trade prices but with the usual retail markup.
Post the initial 48-hour move, the stock price tends to trade in a narrower band, normally within a 5–10% range, till the SEBI review period comes to an end. The next move generally happens after the filing of RHP or SEBI comments/withdrawal.
The key takeaway for the seller: the immediate post-DRHP stage represents the best time to get out of a position if one is looking to avoid the six-month waiting period after the IPO. As far as the buyer is concerned: while the immediate post-DRHP stage gives greater conviction due to more information being available, it is also at a higher price (post the 48-hour move).
What does NOT change immediately on DRHP filing
It should be made clear upfront that the six month lock-in period does not begin upon the filing of the DRHP. SEBI ICDR Regulation 16 calculates the lock-in period of pre-IPO non-promoter holdings from the date of listing and not from any other date. Until the company lists on the stock exchange, you can freely transfer your pre-IPO holding just like any other unlisted security. The lock-in period only begins once the security goes live on the exchange.
From a practical perspective, this means that a holder who exits during the very narrow window of time immediately after the DRHP filing (when the rates have been hiked up but before listing takes place) gets out of the lock-in altogether. A holder who opts for waiting till listing would need to wait six months longer before he/she could sell off the stake. These are two separate strategies and hold different risks. The DRHP filing is the turning point here.
Second point: The tax treatment does not change either. If the company is yet to list, then its equity is unlisted equity. This means that Section 112 of the Income Tax Act comes into play, which requires that a holding period of two years be completed before claiming Long-Term Capital Gains (LTCG), which also implies no exemption of ₹1.25 lakh and a rate of 12.5% for LTCG after the Finance Act 2024. Section 111A (regarding 12-month-holding LTCG and ₹1.25 lakh exemption of listed equity) will come into effect only after listing.
Third point: The company’s performance is unchanged. It cannot change because the DRHP filing is a disclosure activity, not an operational one. What was true about the business yesterday remains the same today.
The dealer-network playbook between DRHP and listing
Before the listing, after DRHP filing, the market in that name moves through a unique period. There is usually a spurt in activity — most people would like to get out of their investments because the lock-in has commenced, and there will be an influx of fresh buyers looking to position themselves prior to the IPO.
For those selling:
Within 1–4 weeks after filing DRHP. Assess if you want to exit here or hold for listing. The post-filing rate has shifted by 8–20% vs. the pre-filing reference rate. Now that there’s a material unrealized profit and your investment thesis is “ride the IPO,” this is the time for assessing whether you want to realize the profit here or take a further call to hold until listing (with six months’ lock-in post-listing).
4 weeks to 3 months post-filing. SEBI evaluation is underway. Rate is range-bound. This is the period to assess if you want to hold for listing if you already made that call. Alternatively, if you have chosen to exit, this is the opportunity to locate a buyer within the new range. There would be plenty of activity by dealers in terms of quoting bid and ask during this period.
3 to 6 months after the filing (if there is no hold back by SEBI). RHP filing strategies are employed. Discussion about the price band starts in the market. The rate is adjusted again. Normally it goes up; however, sometimes it could be adjusted downwards if the price band in discussion is lower than the current unlisted rate (since in such a case the company is playing safe while pricing their issue to get it subscribed). This is another major point of adjusting the rate.
Buyers coming into the picture during DRHP and listing:
Right after the DRHP. Read the DRHP. Particularly: Concentration of revenue (because of overreliance on top customer) risks, Related party transactions (whereby the performance gets hidden), Pending litigations (cases with potential liabilities), Conditional and pending regulatory approvals and Use of funds. The DRHP becomes the most important due diligence documentation for entry - read before paying the dealer.
Compare with dealer quote. Using the audited financials, you can do the valuation of the shares and compute the per-share book value, P/E based on trailing EPS, EV/EBITDA, and then compare it against listed peers. Use the standard 15–25% discount from the peer to reflect that these are unlisted shares and see if the dealer price is lower than, inline, or higher than your valuation band. In case it is higher, the DRHP move has been a bit exaggerated and you should just wait and see.
Prepare for the lock-in. Post-DRHP purchase will definitely mean a lock-in of six months under Regulation 16. You need to ascertain what exactly the status of the ISIN is whether it is pre-IPO ISIN or listing ISIN.
What happens if SEBI sends back observations
It does not always result in the relatively painless process of in-principle clearance by SEBI. The common outcome is for SEBI to make observations regarding the DRHP. Observations range from questions and clarification to additional disclosures required or even restructuring of the offer. The company will address the observations and submit a revised draft. This may happen once or twice.
Each round of observation process elongates the IPO process by 4–12 weeks. It is worth noting that the unlisted share price normally recovers some of the gains made following the DRHP announcement due to holdback. For investors who bought the stock after the DRHP announcement, based on the expectation that the stock would list in 6–9 months, the observation period would lengthen the listing process to 9-15 months.
For those evaluating companies, the observation period is informative. Companies which take observations well and are generally clarification observations tend to clear review with little effect on the rate. Those with serious disclosure deficiencies indicated by the observation process tend to experience a lot of pressure on the rate through the process.
One of the most effective ways to track this would be through SEBI’s website (filings status tracker) and media coverage of the IPO pipeline. If the company is actively issuing corporate action communications, then this can be tracked from its stock exchange communication too. Dealer network discussions are yet another source.
What happens if the IPO is withdrawn
Withdrawal happens. Firms submit their DRHPs and subsequently withdraw. The reason for withdrawal could be related to valuation (the market scenario has changed, and there will be no subscription), compliance (SEBI’s concerns have become too many to attend to), or even strategy (the situation has become favorable for them to pursue another approach, which becomes a better one than an IPO).
When there is a withdrawal of a DRHP by a firm, chances are that the price of the unlisted share recovers the entire post-DRHP gain and, in some cases, more. There is a re-rating that the IPO is “not going ahead anymore and so, go back to a normal IPO discount level.” If you have invested during the time the post-DRHP price increase had happened, then your worst case has occurred. However, if you had invested much earlier, then you may still see the price at or higher than where you got into the stock.
What does this mean for anyone considering buying shares after a company’s DRHP? Size your position on the basis that exit is feasible. You must factor in the possibility that a decline of 5-15% will happen in the future and that the price could go down in case of the company withdrawing from its offer. In other words, a 5-15% drop must not force an exit.
Historical footnote: During any 12-month period, anywhere between 10% and 20% of all the companies that file their DRHPs eventually end up withdrawing from their DRHPs, filing new ones with major modifications, or are reviewed by SEBI for longer than usual time periods.
What changes for the holder once the company actually lists
The day the company actually lists on NSE or BSE, three things change simultaneously for a pre-IPO holder.
Lock-in begins. SEBI ICDR regulation 16 triggers the six-month lock-in countdown for non-promoter shareholders after IPO listing. For the ensuing 180 days (or any other duration as ICDR may decide for that class), the share cannot be sold in the exchange. The shares will reflect in the demat holding statement but with the status of being locked. The lock-in details are registered at the depositories like CDSL/NSDL.
Change in ISIN. The ISIN for pre-IPO shares may get substituted with that of the listed equity stock. This process is managed by the depository and company secretary. The ISIN is what reflects in the demat statement for the holder, and the number of shares remains the same.
Tax regime changes.The moment the stock begins trading on the market, it becomes a “listed equity” as per the Income Tax Act. Section 111A is applicable. The time period for the calculation of LTCG reduces from 24 months to 12 months. Exemption limit of ₹1.25L for LTCG becomes eligible for consideration. The taxation on STCG falls to 20% (after Finance Act 2024) from slab rate. It must be noted here that the holding period of the company’s stock is calculated based on the date of purchase of the unlisted equity and not the listing date to determine LTCG or STCG.
After the expiration of the mandatory six-month lock-in period, the stock can be traded like any other listed-equity investment. That marks the end of the life-cycle of the unlisted shareholding.
A clean decision framework for the holder
Putting all of the above into a clean decision sequence for a holder whose company has just filed DRHP:
Decision 1 – Should I leave before lock-in period or hold until listing?
In case you are planning to leave before lock-in period, then a time span of 6–9 months (time between filing of DRHP and listing) is available. In this regard, you need to make your plan and sell through the dealer. Remember that after DRHP filing, the stock rate has increased and now you will be selling at higher rate, not at pre-DRHP level.
In case you wish to hold until listing, then consider six months lock-in after listing. So your time horizon would be around 12–15 months from filing of DRHP.
Decision 2 – If holding, then how to track SEBI reviews?
Keep checking on the website of SEBI about filing of documents. You should subscribe to the investor relations or news tracker related to the company under consideration. You may face either speed-up or slowdown due to SEBI observations; however, decide beforehand your approach in case of prolonged timelines beyond 12 months.
Decision 3 — What will be my plan if there is a withdrawal from the IPO?
Commit yourself to your plan before the withdrawal actually takes place. This is the truth — withdrawals result in a 10–20% drop-off in price within weeks, and a prolonged period back to the pre-DRHP level. You should size your trade such that any potential loss is tolerable if you need to exit, or provide sufficient capital to allow averaging down.
Decision 4 — If trading post-DRHP, what will be my entry strategy?
First, read the DRHP. Calculate a fair-value range based on listed-peer valuations less an unlisted discount. Obtain dealer quotes of the same day from at least two independent sources. Crosscheck. Buy at or around the low end of your fair value-plus-dealer range. Size your trade keeping the withdrawal scenario in mind.
With regard to the entire process for the acquisition of securities before IPO, look into how to buy unlisted stocks in India, how prices for unlisted stock are discovered in the absence of an active order book, and the buyer's checklist published by UA. For contextual background, refer to the structure that differs from listed equities..
FAQs
Q: What will be the reaction of the unlisted share price after DRHP filing?
The typical response from the unlisted share prices following the filing of DRHP is an appreciation by 8% to 20% in 48 hours, followed by a consolidation phase as long as SEBI reviews and makes its observations before clearing it for further processes. The reason lies in three layers of impact: more certainty in timing, less information gap due to comprehensive disclosures, and arrival of institutional investors. Further appreciation would only come either when the RHP filed along with pricing or when any SEBI observation or withdrawal notice is made.
Q: Can I sell my unlisted shares after DRHP filing?
Yes, you can. The SEBI ICDR Regulation 16 lock-in is only applicable after listing of shares, not on filing of DRHP. The period between filing of DRHP and listing of the company is 6–9 months, during which time there are still trading activities going on for this unlisted share. It could become a very attractive time to exit for current holders without undergoing a lock-in period.
Q: After how many months from the filing of DRHP does the IPO get listed? The normal duration from DRHP filing to listing is between 6 to 9 months, depending upon the SEBI observation process, market conditions, and possible amendments. The companies which respond quickly to SEBI observations and file in favorable market windows achieve listing within 6 months from filing. The companies facing tough SEBI observations and unfavorable market conditions can take as much time as 9 to 12 months or even more.
Q: What is lock-in period as per SEBI Regulation 16 for pre-IPO share holders? According to SEBI ICDR Regulation 16, there is a lock-in period of six months for pre-IPO share holding by non-promoters, calculated from the date of listing. Within this period, no transfer of shares by the holder is permitted, neither in the stock exchange nor in any other form of transaction. For promoters, the period of lock-in is different. The status of lock-in appears in the demat account of the holder.
Question: Is it possible for an enterprise to cancel DRHP? It is possible for an enterprise to cancel DRHP anytime during the evaluation process by SEBI – enterprises indeed cancel DRHP for various reasons including valuation concerns, regulatory concerns, or even business-related considerations. Cancellation will usually lead to the rate of unlisted shares reverting its gains from DRHP entirely, with the delay time being estimated to be months and even years ahead. Cancellation risk represents a very real scenario that should be taken into account by any post-DRHP investor.
Question: What is the difference between DRHP and RHP? DRHP is a disclosure document containing the details of the offer without price band that the enterprise submits for SEBI scrutiny. RHP is an offer document containing the details of the offer along with an indicative price band that the enterprise files close to the IPO opening date. Both DRHP and RHP are publicly available documents.
Q: Is there a pre-IPO lock-in upon filing of DRHP? Filing of DRHP itself does not entail any pre-IPO lock-in; the SEBI ICDR Regulation 16 lock-in applies for a minimum of six months after listing. Pre-IPO stock remains freely transferable through the dealer network until listing day. Functionally speaking, any holder who wants to sell before the lock-in starts gets an entire six-to-nine-month window, at the post-DRHP pricing level.
Q: Does listing after DRHP filing reset the holding period? Listing of the shares does not reset the holding period; the holding period still commences from the date of original acquisition of the unlisted shares. But the tax regime shifts from Section 112 (unlisted, 24-month LTCG regime) to Section 111A (listed, 12-month LTCG regime). It is a very common misunderstanding that the holding period resets after listing — but it doesn't.
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.
