Foreign investors set to fuel India's tech IPOs

SPECIAL REPORT
Foreign investors set to fuel India's tech IPOs
Delivery workers of Zomato, an Indian food-delivery startup, wearing face masks check their phones as they wait to collect orders outside a restaurant. Zomato also revealed a list of 186 "anchor investors" that bought into its IPO. Some of the biggest names in global investing.Courtesy: Reuters

Trend reflects strong confidence of global investors in the Indian market.

When Zomato's shares soared by more than 82 percent in their debut on the National Stock Exchange of India, it created a frenzy unseen in the Indian start-up market in recent times.

Thanks to the public listing, the food delivery app's initial public offering - priced at Rs 76 or a little more than $1 per share - was hailed as a stupendous success even though the company continues to grapple with successive quarterly losses. The stock opened more than 50% higher, valuing the company at about $12.2 billion.

Anchor investors

In the process, Zomato also revealed a list of 186 "anchor investors" that bought into its IPO - including US asset managers BlackRock and Fidelity as well as government-linked managers like the Canada Pension Plan Investment Board and the Abu Dhabi Investment Authority from the UAE - some of the biggest names in global investing.

That list is not only symbolic of the confidence of global investors in the Indian market, but also how big-ticket foreign investors are making a beeline for tech investments in the country.

Many such global investors have profited greatly from the pandemic-fueled tech stock rally around the world. But now all eyes are on India - which boasts a rapidly-increasing number of unicorns but without a strong footprint of tech IPOs.

Opening the floodgates

“I think Zomato’s successful IPO might open the floodgates,” Anirudh Suri, founding partner of the India Internet Fund, which has invested in 20 start-ups across India, told CNBC. As to which companies will be next to go public, Suri said he’s betting on Paytm, which claims among its backers Japan’s SoftBank, Ant Group and Berkshire Hathaway.

Tech giant Uber sold its India food delivery business to Zomato last year in an all-stock transaction that gave the US company a stake. Zomato’s other prominent backers include Indian internet company Info Edge, Alibaba-affiliate Ant Group and Singapore state investor Temasek.

Advertisements of Paytm, a digital wallet company, are seen placed at a road side stall. Paytm claims among its backers entities like Japan’s SoftBank, Ant Group and Berkshire Hathaway.
Advertisements of Paytm, a digital wallet company, are seen placed at a road side stall. Paytm claims among its backers entities like Japan’s SoftBank, Ant Group and Berkshire Hathaway.Courtesy: Reuters

Bracing for the IPO battle

According to CNBC, after listing in India, Zomato has plans to make its debut in the US. The popularity of Zomato's stock among the big names has also lured domestic asset managers in India. A "dividend yield" mutual fund that subscribed to Zomato's IPO drew attention on social media. Zomato, which has been burning cash to acquire users, has not paid a dividend for at least the past three fiscal years, according to its prospectus.

"Indian mutual funds have for a long time resisted investing in these startups. But now they suddenly realize that they can't ignore this wave ... so their main objective right now is that if there is a wave, then they also have to ride it," said one investor.

Zomato's battle with key rival Swiggy is shaping up to be a test of whether an IPO brings an advantage over staying private. A few days before Zomato's shares began trading on Indian stock exchanges, Swiggy announced that it had raised $1.25 billion from investors including SoftBank's Vision Fund 2. Swiggy said the funding round was heavily oversubscribed following strong interest from investors.

E-commerce platform Flipkart raised $3.6 billion at a mega-high valuation of $37.6 billion, the largest fundraise for an Indian company. Key investors include the Canada Pension Plan Investment Board and Walmart.
E-commerce platform Flipkart raised $3.6 billion at a mega-high valuation of $37.6 billion, the largest fundraise for an Indian company. Key investors include the Canada Pension Plan Investment Board and Walmart.Courtesy: Reuters

Fast-growing companies

“The tech indices in India currently track the large outsourcing companies; there is no way for investors in either India or the U.S. to target faster-growing internet companies,” said Amit Anand, co-founder of exchange-traded fund company NextFins. Anand said he expects Indian tech IPOs to price at a premium multiple. “Investors recognize the long runway for internet penetration. E-commerce penetration in India is 7% versus 25% in China. Smartphone penetration in India is about 30%, less than half of China’s 60%,” said Anand, who formerly worked for Axial Capital.

In a further reinforcement of that sentiment, some of India's unicorns continue to raise additional rounds, capitalizing on the strong interest in India tech. Hotel start-up Oyo, backed by SoftBank, raised an additional $660 million. E-commerce platform Flipkart raised $3.6 billion at a mega-high valuation of $37.6 billion, the largest fundraise for an Indian company. Key investors include the Canada Pension Plan Investment Board and Walmart.

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