This is the ‘new normal’ as excitable fund managers peddle initial public offerings (IPOs) and other fund offerings also attracting, as always, a new generation of suckers. The world has seen this fundamental model many times since joint stock companies came into existence. What is new though — and the source of déjà vu — is justified hope in a specific sector: startups.
The startup ecosystem is fuelled by the Jan Dhan, Aadhaar, Mobile (JAM) trinity, and the confluence of a core digital infrastructure with population levels, tech-led disruption platforms and application programming interface- (API-)enabled ecosystems like Aadhaar, National Payments Corporation of India (NPCI) and Unified Payments Interface (UPI). Private equity-funded unicorns are passé. It is time for the retail investor to now participate in this revolution after the impending mega listings of Zomato — its ₹9,375 crore IPO scheduled for July 14 — Paytm and OYO in the coming months. It’s time for our own Amazons and Alibabas.
Infosys’ listing in 1993 started a transformational journey that was nothing short of iconic. Along with the significant deregulation in financial markets, it attracted a new class of overseas investors into the markets who understood technology, governance and accorded new levers of valuations. The language of the markets changed permanently. The impending unicorn listings reflect such a transformational promise today.
Till-now-unknown concepts in Indian markets like unprofitable hyper growth, and funding negative cash flows with progressively dizzying valuations of stock issuances proportionate to cash burns can only be appreciated by those who can contextualise that heady 1995-2000 period across the world, with the simultaneous rise of mobile telephony, internet and ecommerce, and the subsequent emergence of Google, Facebook, etc.
Key learnings emerged, such as the importance and art of storytelling to international investors while selling a vision of a future yet to emerge, and then doing whatever it takes to ‘make it happen’ while demonstrating the flexibility of adapting through the various twists and turns inherent in navigating the unknown. The core tenet of such high-impact financial stakeholder communication isn’t explaining what you know, but ensuring investors understand what they are buying in the absence of anything tangible to sell in the first place.
With respect to these unicorn listings, Indian markets could potentially be at the inflexion point today that Jeff Bezos and others found themselves in, while building a powerful, self-sustaining ecosystem in the US. Like
, India will attract an entirely new class of global investors. The latter, having seen similar models play out in Nasdaq and Shanghai, would eagerly play the multiples arbitrage India’s listed unicorns would provide.
The few existing listed entities from platform, mobile and ecommerce plays — such as Multi Commodity Exchange (MCX), BSE, IndiaMART, Affle and Nazara — will get re-rated, thereby setting off a new virtual cycle based on scarcity premiums associated with such investments. Many of these investors would have missed — or cashed — out, on the dizzying valuations on global exchanges and could encourage an encore in India’s virgin markets.
Given the macro theme of financialisation of savings in India, domestic investors, too, will play a large role in the market valuations in the future. And for businesses with predominantly domestic assets that need a deep understanding of the potential for disruption in the Indian marketplace, an aligned investor base is critical for value discovery. This can only be provided by our bourses.
Pricing ‘disruptive innovation’ is the forte of this new investor breed, which will guide domestic markets away from merely valuing current profitability to more esoteric, but established, metrics like unit economics, cash burns and hyper profitability expectations.
The current risks to the markets are well known — inflated asset prices, huge macro imbalances, uncertain economic conditions, inflationary expectations and imminent withdrawal of global liquidity. Added to this are large equity issuances and their penchant for signalling a market top, like the mega IPO of
However, given the transformative potential, there is reason to be optimistic that the listing of these unicorns can do what Infosys did for the markets some 30 years ago. For this to happen, our entrepreneurs have to ensure they stay the course with an unrelenting focus on governance, scalability, unit economics and powerful investor communication, as they continue to build a tech-enabled disruptive ecosystem in India.