Beyond Narratives : FAD - FOMO - FADE : 2 Investors’ blind date with…

Greetings from Team Carnelian!!

Our letter to investors typically focuses on trends, opportunities, risks, and the broader questions that investors collectively face. Consistent with this approach, we shared a 2021 note titled "FAD – FOMO – FADE "(link), highlighting risks we anticipated which helped our investors avoid significant losses and disappointment.

In 2021, new-age tech companies became the talk of the town—a classic FAD. It began with a few high-profile listings and private transactions, which quickly sparked widespread investor interest. Unfortunately, this interest was without understanding business models/nuances and unsustainably high valuations, largely driven by momentum and FOMO. As is often the case with fads, it didn’t last. When sentiment shifted, reality set in—and many investors came to regret their decisions, albeit a little too late! We all witnessed how the frenzy subsided in the following years. Nearly three years on, most of these so-called revolutionary new tech stocks have seen significant price declines or have gone through extended periods of time correction since their IPOs in 2021.

The table above clearly shows how these FADs resulted in huge capital losses (Type A Risk) and also risk of opportunity cost (Type C Risk). If investors didn’t fall prey to such fads how much different in outcome could have been.

This is the reason for this note again as we are seeing “another” FAD building. Before that let’s understand this cycle. 

FAD marks the narrative-driven phase, where a particular theme or sector is touted as "the next big thing." A handful of early success stories are amplified across media platforms—talked about, hyped up, and written about extensively—pushing valuations higher.

As valuations continue to rise, FOMO—the fear of missing out—sets in. Investors, driven by momentum rather than diligence, rush in.

Eventually, this FADES. The initial excitement wanes, the narrative loses steam, and reality sets in. Valuations correct, sentiment reverses, and many investors are left nursing losses—albeit with valuable lessons. Depicting the same below,

Over the past year or so, we have observed the formation of yet another FAD–FOMO cycle. A recurring theme in conversations with clients and partners has been the eagerness to find "the next big unlisted stock" or "the next preferential allotment to participate in." The excitement was palpable—but more than that, it often felt like desperation to get in early.

What stood out was that the enthusiasm wasn’t typically driven by deep research, understanding of the business, or a clear view of risk versus reward. Instead, it stemmed from hearing that someone else had made money in unlisted shares, from casual chatter at social gatherings, from having missed a deal shown by a banker or from the glamour of knowing that celebrities like Amitabh Bachchan had invested in startups such as Swiggy. It wasn’t about smart investing—it was about being in the game and being able to say, “I’ve also invested in unlisted shares” or “I participated in XYZ preferential allotment.” (Though, of course, no one openly admits to this motivation.)

This pattern stayed with us—not because it was surprising, but because it's all too familiar. It’s something we’ve seen repeat across market cycles. Today, we believe FAD is being built around two areas:

1. Unlisted shares, and

2. Preferential allotments in listed companies

Let’s speak about unlisted shares first:

Fueled by the success stories of NSE and a few other high-profile listings in recent years, investing in unlisted shares has suddenly become fashionable. That’s how most FADs begin— just as we saw in 2021 with many new-age companies.

Today, many family offices hold significant exposure to direct unlisted equities. This trend has been driven not only by large listing gains and active secondary markets but also by the proliferation of intermediaries—investment bankers and informal brokers—eager to supply these shares.

What’s concerning is the growing influence of social media, informal dealers, and Telegram groups, which aggressively promote unlisted shares, often dangling unrealistic promises of 30%+ IRRs!

What’s even more surprising is the lack of basic diligence. When asked for details about the company, most investors can only cite the price per share. Rarely is there any discussion around what truly matters— business model, management quality, profitability, return ratios, or the company’s fundamentals & valuations. The conversation tends to stop at the “price,” completely overlooking the bigger picture.

• What’s the implied market cap?

• What about business, value chain, industry structure etc.?

• Is the company even profitable?

• What is ROE/ROCE?

• Is this price justified based on fundamentals?

We've observed several instances where unlisted shares of fundamentally sound companies have rallied sharply which were driven solely by the news of a DRHP filing or just on IPO rumors. These price movements often occur without any underlying improvement in business performance or financials.

For many, this has become a perceived shortcut to quick gains—buy before the IPO and sell at a premium when the listing happens. However, not every DRHP results in an IPO, and more importantly, only a select few IPOs deliver meaningful returns post-listing.

As always, the outcome of FAD and FOMO is eventually FADE. And in some cases, the fade has been so sharp that the investment has been written off entirely!!

Here are a few examples:

• HDB Financial, once a highly sought-after unlisted stock, reached a peak price of INR 1,045 in the unlisted market ahead of its IPO. However, it listed at INR 835 and currently trades around INR 735—significantly below its unlisted highs. The situation has been particularly disappointing for late-stage investors, with the 6-month post-listing lock-in period further compounding the downside risk.

• NSDL saw its unlisted share price peak at around INR 1,275 before gradually declining to INR 1,025 in the lead-up to its IPO. The company filed its DRHP in July 2023, but it wasn’t until August 6, 2025—more than two years later—that it finally listed, at an issue price of INR 800 (a modest 15–17% premium). Despite the long wait, the stock debuted at a price significantly lower than what it once commanded in the unlisted market, disappointing many early investors who entered at inflated valuations.

• Swiggy listed at INR 390, compared to its unlisted price of INR 500. Large selloffs by existing PE investors were justified based on a “discount to Eternal (Zomato).” While the stock saw a brief listing uptick, the 6-month lock-in prevented exits—prices are now below entry levels for most unlisted investors.

• Waaree Energies Listed at ~INR 2,000, down from an unlisted peak of INR 2,500. Early investors made gains, but those who entered late in the unlisted phase saw immediate drawdowns post-listing.

• PharmEasy Unlisted shares surged to INR135 after filing for a USD 843mn IPO in Nov 2021. IPO was withdrawn in Aug 2022. The stock has since crashed to INR 7.5—a 94% drop—due to delays, poor fundamentals, and lack of clarity. A reverse merger with Thyrocare is now being considered for a potential 2025 listing. Huge capital losses!!

• OYO Dropped from INR 145 in the unlisted market to ~INR 42 now. After three failed IPO attempts, value erosion has been severe, and liquidity has all but dried up, leaving investors with limited exit options.

• Good Glamm At its peak in 2021, the company was valued at USD 1.2bn. As of 2025, valuations are down to ~USD 150mn—a ~90% erosion. Delayed IPOs and rising debt have blocked exits for those who entered at inflated valuations.

• BluSmart Mobility Traded as high as INR 4,844 in the unlisted space but has since fallen to INR 1,900. Liquidity vanished after governance concerns surfaced in its promoter entity, Gensol.

So, what do all these stories tell us?

Behind the hype and headlines, there are deeper structural issues in the unlisted investment ecosystem—real concerns that few are talking about. Based on our experience and observations, here are the core challenges:

• Lack of qualified price discovery: prices in the unlisted market are often set by intermediaries, not through a transparent, investor-led process.

• Information asymmetry: most investors rely on informal or second-hand information. Unlike listed markets, there's no regulatory framework ensuring timely and accurate disclosures.

• Liquidity risk: there’s no T+1 exit here. SEBI mandates a 6-month post-IPO lock-in, and in many cases, the IPOs themselves are uncertain or delayed indefinitely.

• Blind allocations driven by FOMO: many investors jump in without any diligence—just because others are doing it, or because someone made money once.

• No investor rights: unlike listed companies, investors in unlisted shares typically have no voting rights, no protections, and little recourse.

• Lucrative incentives for bankers/intermediaries: bankers and dealers often earn hefty commissions for pushing these shares, regardless of long-term outcomes for investors. (Watch The Wolf of Wall Street if you need a refresher on how this plays out.)

The path forward: discipline over desperation

The private equity and unlisted markets do hold the potential for wealth creation—but only when approached with discipline and sound investment principles. Just like in public markets, it requires a careful assessment of:

• Quality of management

• Business fundamentals

• Valuations

• Governance risks

• Investor rights

Importantly, rights and protections matter even more in private markets because there is NO SEBI framework to fall back on.

In our view, investing in unlisted equities is the domain of professional investors—not individual retail investors. Professionals understand the risks, know how to negotiate terms, perform proper diligence, and most importantly, price in the illiquidity, governance challenges, and lack of exits.

Even with all this expertise, only a small number of private equity funds have consistently outperformed public markets on a post-cost basis.

The second FAD: preferential allotments – a cautionary tale:

Preferential allotments are for listed companies to raise capital by issuing shares to a select group of investors, often promoters or strategic partners. However, recent trends suggest a shift towards using this mechanism to attract retail and non-institutional investors, sometimes bypassing professional scrutiny.

The usual template is –

1. Narrative construction: Companies craft compelling stories to generate interest, often inflating valuations. Due to SEBI's pricing formula, which considers the two-week average price, the issue price may appear attractive, tempting investors with an immediate 'in-the-money' position.

2. Selective anchors: The involvement of one or two well-known investors is highlighted to lend credibility, even if their participation is minimal or non-strategic.

3. Investor psychology: Retail and HNI investors commit significant amounts, ranging from INR 2–10 crore, under the impression that post-lock-in, they can exit at a profit. This overlooks the reality that many others will have the same exit plans, leading to potential oversupply and price pressure

4. Regulatory loopholes: Preferential issues are often approved through private resolutions with limited shareholder scrutiny, reducing the checks and balances typically present in public offerings.

5. Intermediary incentives: Investment bankers and intermediaries receive substantial fees for facilitating these allotments, sometimes through opaque channels, raising concerns about conflicts of interest.

Some examples seen in preferential allotments in recent years –

• A mid-tier real estate company issued shares via preferential allotment at INR714, but the current market price has dropped to INR 289 — a sharp correction of ~60%.

• A solar consulting and EPC company had preferential issue at INR 871 in June24, but currently trading at 95% discount to that issue price.

• An integrated omni-channel payment solutions provider of digital and cash-based solutions to banks and corporate clients had preference issue at INR 79 in July24, now trading at INR5 – 93% discount from preferential issue price.

• A small-cap company engaged as a manufacturer of diamond studded Jewellery and trader of cut and polished diamonds issued preference at INR 150 in Dec24 now available at 29% discount from that.

• A mid-tier real estate company engaged in the development and construction of IT parks, hospitality projects, SEZs, office complexes, shopping malls and residential projects had issued preferential issue in Dec24 at INR730 which is now trading at a discount of 26%.

And the list goes on…

In our portfolio reviews with numerous family offices, we've observed a recurring issue: substantial allocations to unlisted equities and preferential allotments that have become illiquid or have resulted in significant capital losses. These investments now pose challenges due to Illiquidity or huge capital losses.

The story is simple: price ≠ value, scarcity ≠ quality, new ≠ better returns and most importantly unlisted ≠ better returns.

We are neither making a case that there is no opportunity in unlisted markets/preferential issue nor are we saying every transaction is bad and doesn’t deserve attention.

Our suggestions are simple and may sound like old school & boring but while some things will always change and some things will always remain same:

1. Are you applying relevant yardsticks to evaluate such opportunities than one does usually, in terms of understanding business, quality of management and risk reward of investment keeping in mind valuations & risk.  Our experience says, because of FOMO, they tend to get ignored.  

2. Do you have adequate understanding of risk and ability to manage risk: Our experience says, most families / HNI don’t have.

3. Something new or different doesn’t mean risk reward is better: Our experience - they appear to be tempting but most FADs are around something new. Like recently someone asked me – do you do “Deep Tech”. I asked him – what do you mean? He didn’t have an answer as to what he meant by “Deep Tech”.

   “Try to understand everything, but don’t do what you don’t understand.”

4.  Avoid distraction: Like in everything, in Investing, avoiding distraction is very important. One bad investment, assessed in the portfolio context, can drag down returns substantially. Most of our funds have given better than private equity kind of returns with lower beta and full liquidity. We avoid distractions and suggest our clients as well. (Link)  

5. Trusted advisors: We want to guard our clients against mushrooming bankers whose only objective is make short term money and we face them every day. We get bombarded by the emails and calls of opportunities by such bankers every day. Everybody is not bad, there are many exceptionally great trustable bankers, but they are smaller population for sure. Like everything else, real skill is choosing ones you know and trust.

6. Surgery must be done by surgeons: Like most investors over the years have learnt (some will learn in future), seeking stock TIPS for investment is far more self-damaging and expensive than giving money to a competent manager, investors will soon learn follies of this FAD-FOMO driven investing in unlisted/preferential. It’s a very specialised job. Don’t risk your hard-earned money. Risk is not in the asset class or instrument but in one’s own understanding of it & approach towards it.

We have always stuck to the basics of investing, evaluating each opportunity based on its risk–reward, and investing only after “we” truly understand it. We don’t claim to be the smartest or to understand everything. We learn new things every day and stay open to new trends, but we refuse to fall prey to FADs or act out of FOMO. We let you decide your way.

Despite heightened volatility in the markets, our portfolios rebounded faster from the March-25 lows thereby generating positive alpha.