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Tech unicorns race ahead in India


BANGALORE – The bumper stock market listing of US$1.3 billion (S$1.76 billion) online food delivery company Zomato on July 23 has highlighted the rapid rise of India’s unicorns.

Zomato’s shares gained nearly 80 per cent on the first day of trading on the Bombay Stock Exchange, taking its market value to nearly US$13 billion. Indian retail investors, as well as American asset managers, BlackRock and Fidelity, and government-linked managers like the Canada Pension Plan Investment Board and the Abu Dhabi Investment Authority, bought into the company.

As traditional sectors feel the brunt of the Covid-19 pandemic, technology start-ups have raced ahead by making the most of the worldwide shift to a more acutely digital life.

Internet-based businesses are raising funds at a record pace, riding the digital wave which has intensified during the pandemic.

“The tremendous response to our IPO (initial public offering) gives us the confidence that the world is full of investors who appreciate the magnitude of investments we are making, and take a long-term view of our business,” said Zomato chief executive Deepinder Goyal.

An ever-growing number of Indians – some by choice and others compelled by the pandemic – are now buying everything from medicine, clothes, gadgets and food to furniture online.

The information technology industry’s apex body, Nasscom, forecast that India would have 50 unicorns – start-up companies with valuations of more than US$1 billion – before the end of this year. The number already stands at 54.

A record 18 start-ups became unicorns this year, most of them in fintech, software services and e-commerce, based mainly in Mumbai, Bengaluru and the Delhi capital region.

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Some of the new unicorns are fintech start-ups like Cred and Zeta, PharmEasy pharma e-commerce, Urban Company handyman service, ShareChat and GupShup messaging, Chargebee subscription billing and used cars firm Droom, the latest entrant.

Praxis Global Alliance said India is becoming the world’s third-largest tech start-up hub. India’s e-commerce penetration is 7 per cent (compared with China’s 25 per cent). India’s smartphone penetration is only about 30 per cent.

But the massive shift of consumers towards digital businesses in the past year, aided by low data charges, has revealed the under-penetrated market’s high potential. This has not only helped loss-making Internet-based start-ups command high valuations, but also attract global investors who want to diversify from saturated Western markets.

China still dominates Asia with 138 unicorns but its freeze on local tech companies listing in the United States has spooked many global investors, who are now looking at the world’s second-most populous country.

Last year, foreign investors poured more than US$12 billion into Indian companies in over 600 deals.

US-based investment firm Tiger Global overtook another US-based venture capital firm Sequoia Capital as the top investor.

Singapore’s Temasek increased its India portfolio by 55 per cent from $9 billion last year to $14 billion in 2021. The investment company that already backs Zomato, taxi aggregator Ola, fitness app Cult.fit and public listing-bound e-insurance outfit PolicyBazaar has invested further in edtech, fintech and online pharma retailing.

Thanks to the global interest in the past year, Indian start-ups have also finally shed their reliance on Chinese investment.

In 2018, Chinese investors pumped US$2 billion into India, increasing to US$3.9 billion in 2019. After the border clashes in May last year between Indian and Chinese troops, funds from China fell to US$263 million in the first half of 2020. American investors swooped in to fill the gap.

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Zomato’s successful listing has also opened the floodgates for other start-ups to go public.

“The oversubscription of Zomato’s shares was a pleasant surprise. It shows the large amount of capital available and ready to chase tech companies,” said Mr Madhur Singhal, chief executive of Praxis Global Alliance.

At least a dozen others including e-commerce company Flipkart, supply chain services company Delhivery and others like PolicyBazaar, Freshworks and Nykaa, are gearing up to list on the stock market this year.

Digital payment system Paytm, backed by SoftBank Group and Ant Group, aims to raise US$2.2 billion in a public offer, likely in November. It would make it the biggest public debut in India, a record now held by the country’s biggest mining company Coal India.

A PayTM representative said the moment was opportune because “the euphoria around digitisation is very high today”.

But, like China, data privacy issues still plague India. India has no data protection law yet, and the government this year issued stringent guidelines for Internet-related companies to operate here.

Twitter and WhatsApp have been challenging these rules in court and both Zomato and PayTM mention “changing regulations” as a risk factor in their public offer papers.

Mr Singhal cautioned that not every tech unicorn would necessarily be successful in the long term. Most are still trading off profitability in favour of growing rapidly.

“Their success will depend on their technology, business models and ability to deal with disruption. Even in the US, tech stocks of giants like Facebook and Amazon have been volatile, turning as the public sentiment does. Similarly, Indian tech will also have to ride the maturity curve,” added Mr Singhal.

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