Sector selection matters as much as company selection in unlisted investing. The right sector at the right time can amplify returns, while a declining sector can doom even great companies. Here's what's hot, what's not, and what to watch in the unlisted market.
Red Hot Sectors (High Activity & Growth)
Fintech & Digital Payments
Why It's Hot:
UPI transactions crossing 10 billion+ monthly
Credit penetration still low (opportunity)
Regulatory clarity improving
Strong IPO exit track recordSub-Sectors:
Payment gateways and processors
Neo-banking and digital lending
Wealth-tech and investment platforms
BNPL (Buy Now Pay Later)Key Metrics to Watch: Transaction volumes, take rates, CAC payback period, regulatory compliance
Risk Level: Moderate (regulated but stable)
B2B SaaS & Enterprise Software
Why It's Hot:
Indian SaaS serving global markets
Recurring revenue model (predictable)
High gross margins (70-85%)
Dollar revenue (currency advantage)Sweet Spots:
Vertical SaaS (healthcare, logistics, retail)
Dev tools and APIs
HR-tech and collaboration tools
Automation and workflow softwareKey Metrics: ARR growth, NDR (Net Dollar Retention >110%), CAC:LTV ratio, churn rate <5%
Risk Level: Low-Moderate (stable business models)
Quick Commerce & Last-Mile Delivery
Why It's Hot:
Consumer behavior shift to instant gratification
10-minute delivery becoming norm in metros
High order frequencies create network effects
Multiple funding rounds happeningReality Check:
Capital intensive - burn rates are high
Unit economics still unproven at scale
Consolidation likely (2-3 winners)
Only invest in market leadersRisk Level: High (execution and capital risks)
Warm Sectors (Growing Steadily)
D2C Consumer Brands
Why It's Warm:
Building strong brands with loyal customers
Better unit economics than marketplace models
Omnichannel strategies working
Acquisition targets for large CPG companiesCategories Performing Well:
Beauty and personal care
Athleisure and fashion
Premium FMCG
Health and wellness productsWhat to Evaluate: Repeat purchase rate, contribution margin, brand recall, founder-product fit
Risk Level: Moderate (competitive but manageable)
Electric Vehicles & Clean Energy
Why It's Warm:
Long-term government support and subsidies
Climate consciousness driving adoption
Technology maturing
Multiple exit opportunities (strategic buyers)Sub-Sectors:
Electric two-wheelers (proven demand)
Charging infrastructure
Battery technology and recycling
Solar and renewable energyCaution: Capital intensive, long payback periods (7-10 years), technology risks
Risk Level: Moderate-High (patient capital required)
Logistics & Supply Chain Tech
Why It's Warm:
E-commerce growth driving demand
Technology reducing costs and improving efficiency
Infrastructure plays with moats
Proven business models from global marketsOpportunities:
3PL (Third-Party Logistics) platforms
Warehousing and fulfillment tech
Fleet management and trucking optimization
Cross-border logisticsRisk Level: Moderate (steady but competitive)
Cooling Sectors (Proceed with Caution)
EdTech
Why It's Cooling:
Post-pandemic normalization hit hard
Many companies facing revenue declines
Valuations corrected 60-80% from peaks
Regulatory scrutiny increasingStill Opportunities In:
Affordable test-prep models
Upskilling for professionals
B2B school management softwareAvoid: K-12 edtech with unsustainable unit economics, companies with aggressive sales tactics
Social Commerce & Community Shopping
Why It's Cooling:
WhatsApp commerce didn't scale as expected
Retention rates lower than anticipated
Squeezed between marketplaces and D2C brands
Limited differentiationVerdict: Wait and watch. Avoid new investments unless clear leader emerges.
Crypto & Web3
Why Avoid:
Regulatory uncertainty extremely high in India
Government stance unclear
High tax rates (30% + 1% TDS) killing volumes
Global crypto winter impacting valuationsRecommendation: Avoid unless you can afford 100% loss and have very high risk tolerance
Sector Comparison Matrix
| Sector | Growth Rate | Competition | Capital Needs | Risk Level |
|---|
| Fintech | 40-60% YoY | High | Moderate | Moderate |
| B2B SaaS | 50-80% YoY | Moderate | Low | Low |
| Quick Commerce | 100%+ YoY | Very High | Very High | High |
| D2C Brands | 30-50% YoY | High | Moderate | Moderate |
| EV & Clean Energy | 40-70% YoY | Moderate | Very High | Moderate-High |
| EdTech | -10 to +20% YoY | Very High | High | High |
| Crypto/Web3 | Variable | High | Low | Very High |
## How to Pick the Right Sector
Your Sector Selection Framework
Ask These Questions:
Tailwinds: Does the sector have 5-10 year tailwinds? (demographics, regulation, technology)
Market Size: Is TAM (Total Addressable Market) >₹10,000 crores and growing?
Proven Elsewhere: Has this model worked in other markets? (US, China, Europe)
Unit Economics: Can companies in this sector be profitable at scale?
Exit Visibility: Have companies in this sector successfully IPO'd or been acquired?
Your Understanding: Do you understand this sector well enough to evaluate companies?Key Takeaways
Red Hot Sectors: Fintech, B2B SaaS, Quick Commerce
Warm Sectors: D2C Brands, EV/Clean Energy, Logistics Tech
Cooling/Avoid: EdTech (mostly), Social Commerce, Crypto
Sector trends change every 18-24 months - stay updated
Hot doesn't always mean good investment - check valuations
Diversify across 3-4 sectors within unlisted portfolio
Invest in sectors you understand and can evaluate
Look for proven business models from other markets
Regulatory tailwinds are as important as market tailwinds