Discount for Lack of Marketability Valuation India 2026: DLOM Methods & Worked Example
Discount for lack of marketability valuation in India is not a mechanical percentage deduction from private-company value. It is a valuation adjustment intended to reflect the economic disadvantage of owning an interest that cannot be readily converted into cash. For CFOs, founders, investors and transaction teams, the critical issue is not whether a DLOM exists in theory, but whether the subject interest, valuation premise, rights, expected holding period and evidence justify one in the specific assignment.
The IBBI Securities or Financial Assets valuation material discusses DLOM for private entities and identifies several approaches, including put-option models, pre-IPO studies, restricted-stock studies and court-case references. It also notes that there is no universal consensus for court-based percentages. That makes documentation and assignment-specific judgment central to defensible DLOM analysis.
What is discount for lack of marketability valuation in India?
Marketability is the ability to sell an ownership interest and convert it into cash with reasonable speed, certainty and transaction efficiency. Shares in a listed company generally have observable trading prices and an established exit mechanism. Shares in an unlisted company may have transfer restrictions, a small buyer universe, information asymmetry, negotiated sale processes and uncertain exit timing.
DLOM attempts to quantify the value impact of that reduced liquidity. Importantly, marketability is different from control. A minority interest may suffer from lack of control, while a private-company interest may suffer from lack of marketability. Applying both adjustments without understanding what the underlying valuation method already captures can lead to double counting.
For the wider framework, see PGT & Associates' Private Company Valuation in India 2026 guide.
DLOM is not a standard 20%, 25% or 30% haircut
One of the most common valuation mistakes is to select a familiar percentage and apply it to equity value without demonstrating why that percentage fits the subject security. IBBI educational material lists empirical and option-based approaches rather than prescribing a single universal DLOM rate. The correct adjustment depends on the facts, valuation date, rights attached to the security, expected exit path and evidence used.
A percentage observed in a tribunal matter, a historic restricted-stock study or a pre-IPO study should not automatically be imported into a different company. Different securities can have different lock-ins, information rights, transfer restrictions, dividend rights, exit prospects and buyer pools.
When can DLOM matter in a valuation?
DLOM analysis can become relevant in private-company share valuation, shareholder exits, transaction negotiations, restructuring, dispute valuation, employee or investor security valuation, fairness analysis and certain statutory valuation assignments. Whether it should actually be applied depends on the required standard and basis of value, the subject interest and the purpose of the assignment.
For example, if the starting value already reflects transaction-specific restrictions or a directly observed arm's-length price for the same illiquid interest, another marketability discount may be inappropriate. Conversely, a valuation developed from liquid listed-company multiples may require an explicit review of whether the subject private interest is less marketable than the reference securities.
Four practical approaches to estimating DLOM
1. Put-option models
IBBI valuation material identifies put-option methods as one way to model the economic cost of being unable to sell. The intuition is that a hypothetical put option gives the holder a right to sell; the value of that protection can be used as a proxy for the value lost because the actual private security lacks immediate liquidity. Models cited in the IBBI material include Chaffe, Longstaff and Finnerty-type approaches.
In practice, model results are highly sensitive to volatility, assumed restriction or holding period, dividend yield and other parameters. A technically precise formula with weak inputs can still produce a weak valuation conclusion.
2. Pre-IPO studies
Pre-IPO studies compare prices in private transactions before an IPO with the later public-market price. They can provide evidence of the value difference associated with private status, but comparability must be tested carefully. Company growth, information available at each date, transaction rights, market conditions and the probability of the IPO itself may differ.
3. Restricted-stock studies
Restricted-stock studies compare otherwise similar liquid and restricted securities. They can provide empirical evidence of illiquidity effects, but the legal and market setting of the study may differ from an Indian private-company assignment. A valuer should explain why the selected study is relevant instead of merely quoting its average discount.
4. Court and tribunal references
Judicial or tribunal decisions can be useful evidence of how valuation reasoning has been assessed, but they are not universal rate tables. In a recent NCLAT decision available through IBBI involving appeals from a minority-shareholder capital-reduction matter, the tribunal discussed a 25% DLOM used by the independent valuer and noted that the valuer had considered a broader range and supported the selected adjustment. The decision was fact-specific and should not be read as prescribing 25% for other valuations.
Worked DLOM example: private-company minority stake
Assume a valuation of an unlisted operating company produces an equity value of ₹100 crore before marketability adjustment. The subject interest is 10%, implying a pro-rata value of ₹10 crore before DLOM. Assume the valuer, after considering transfer restrictions, expected holding period, company-specific volatility, exit alternatives and relevant empirical/model evidence, concludes that a 18% DLOM is appropriate. This 18% is purely illustrative and is not a regulatory benchmark.
Illustrative calculation: pro-rata minority value before DLOM = ₹10.00 crore. Illustrative DLOM at 18% = ₹1.80 crore. Indicated value after DLOM = ₹8.20 crore.
The arithmetic is easy; the difficult part is defending the 18%. A good report should show why the adjustment relates to the subject interest and should disclose the principal assumptions, methodology, data source and sensitivity.
DLOM versus discount for lack of control
DLOM and DLOC address different economic characteristics. DLOM addresses liquidity or marketability. DLOC addresses the reduced influence of a non-controlling owner over decisions such as dividends, management, strategy or sale of the business. The IBBI valuation material discusses these separately.
PGT has a separate worked guide on Control Premium in Private Company Valuation India. Read the two adjustments together before combining them in a valuation model.
A common error is to value the enterprise using listed-company multiples, apply a control adjustment, apply a minority discount and then apply DLOM without checking the level of value represented by the starting multiple. Each step should be conceptually reconciled.
Seven DLOM red flags for CFOs and transaction teams
1. A round-number discount is selected because it is common in prior reports, with no company-specific support.
2. The same DLOM is applied to every share class even though rights, conversion terms, exit rights or transfer restrictions differ.
3. A restricted-stock or pre-IPO study is cited without explaining comparability to the subject company and valuation date.
4. DLOM and DLOC are both applied without reconciling the starting level of value, creating possible double counting.
5. The expected holding period is assumed rather than linked to shareholder agreements, transaction plans, IPO readiness or realistic exit routes.
6. Volatility used in an option model is unsupported, stale or based on poor peer selection.
7. The report presents an empirical range but does not explain why the final point within that range was selected.
How DLOM interacts with comparable-company analysis
Trading-comparable analysis starts with securities that are normally more liquid than shares in a closely held company. That does not mean a DLOM should automatically be applied after every comparable-company valuation. The valuer must first determine what level of value the selected multiples represent and what other adjustments have already been embedded in the analysis.
For the market approach mechanics, see Comparable Company Analysis India 2026.
DLOM checklist for a defensible valuation report
A practical file should identify the subject security and rights; state the valuation purpose, basis and date; document transfer restrictions and realistic exit routes; estimate the expected holding or restriction period where relevant; support volatility and other model inputs; identify empirical studies and explain comparability; separate marketability from control; show sensitivity to material assumptions; reconcile the DLOM with the overall valuation approach; and clearly label professional judgment.
Companies Act and registered-valuer context
The Companies (Registered Valuers and Valuation) Rules, 2017 establish the registered-valuer framework for valuations required under the Companies Act and identify asset classes including Securities or Financial Assets. Those rules do not create a universal DLOM percentage. Where a statutory valuation is required, the applicable provision, prescribed valuer eligibility and reporting requirements should be checked separately from the economic question of marketability.
Frequently asked questions
Is 25% the standard DLOM in India?
No. A 25% adjustment has appeared in specific valuation matters, but neither the IBBI educational framework nor the registered-valuer rules create a universal 25% standard. The percentage must be supported for the assignment.
Can DLOM be applied to a controlling stake?
Potentially, because even a controlling interest in a private company can be illiquid. However, the marketability analysis for a controlling block may differ materially from that for a small minority interest, including the buyer universe, exit routes and rights attached to the block.
Can DLOM be used after DCF valuation?
It may be considered, but not mechanically. A DCF normally estimates business or equity value from cash flows; the valuer then needs to determine whether the resulting level of value reflects the liquidity characteristics of the specific interest being valued and whether a separate adjustment is justified.
Does an IPO plan eliminate DLOM?
No. An IPO plan may shorten the expected path to liquidity, but listing is not guaranteed and timing, lock-ins, market conditions and execution risk still matter. A credible near-term exit may affect the magnitude of a marketability adjustment, not automatically eliminate the issue.
Practical takeaway
Discount for lack of marketability valuation in India should be treated as an evidence problem, not a percentage problem. The strongest analysis links the adjustment to the actual security, expected liquidity path, valuation premise and transparent empirical or model evidence. For transactions, shareholder matters and private-company valuations, the audit trail behind the DLOM can be as important as the final percentage itself.
PGT & Associates supports promoters, CFOs, founders and transaction teams with valuation analysis, transaction advisory and financial due diligence. Engagement scope depends on the applicable regulatory framework and professional requirements; no valuation or transaction outcome is guaranteed.
Authoritative sources
IBBI/NCLAT — Comp. App. (AT) Nos. 273–280, 336–340 and 354 of 2019 (fact-specific judicial reference).
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