Indian equity markets celebrated a sparkling 2021, as new-technology company listings poured in. But it is a different story this year, as soaring global rates rain on the stock-price parade, scaring away tech-led and e-commerce businesses that have yet to break even.
In 2022 year to date (YTD), there have been seven initial public offerings (IPOs) by Indian tech-led firms totaling USD 864m, according to Dealogic data. This contrasts with 21 tech IPOs last year, generating USD 6bn.
“The focus is shifting from high growth, cash-burning businesses or to-be profitable businesses, in favour of more conventional business models that have a consistent track record of delivering profits,” says Viral Shah, director - equity capital markets at investment banking firm Edelweiss Financial Services. This trend, he says, is driven by investors looking for businesses that are more resilient to the current inflation-led, soaring interest rates, environment.
As capital markets lose their fizz, private-equity (PE) and venture capital investors are increasingly turning to trade-sale exits. Deal-making momentum via this route may pick up, albeit at compromised valuations, says Vivek Soni, PE leader at EY India.
Bursting bubbles: equity markets across APAC are going flat
India is not alone. Rampant interest rates and geopolitical risks are dampening frothy global equity markets, and tech stocks have been hit hard. The MSCI Asia Pacific index is down 15% year to date, while the Dow Jones Industrial Average has shed around 14%, as on 19 May.
All of India’s tech debutants in 2021 are now trading well below their listing prices, representing quite a hangover for those IPOs waiting in the pipeline. “It is not surprising that many Indian technology companies that had filed their DRHPs are either delaying their IPOs or are reworking the issue size or valuation,” says Soni.
Stock market falls have been compounded by an ongoing sell-off by foreign institutional investors, who exited Indian equities to the tune of USD 22bn between October 2021 and April this year, according to National Securities Depository data.
While the doors may be closing on new-tech firms, investors still have a thirst for some sectors and structurally-sound businesses that proved resilient during the pandemic – pharmaceuticals, logistics, electronics, consumer, and chemicals - which are likely to find more interest than others, says Shah.
Sobering signs: new-tech IPOs are on the back foot
Tech firms looking to list this year are either postponing plans, slashing offer sizes, or contending with lower-than-expected valuations for their businesses.
Take SoftBank and Carlyle-backed Delhivery. The logistics services provider closed a USD 676m (INR 52.35bn) IPO earlier in May after bringing it forward, but had been hoping to raise USD 964m, per its draft prospectus.
Another SoftBank-backed hospitality and travel unicorn, Oyo Hotels & Homes, filed its prospectus in September 2021, targeting an IPO of around USD 1.14bn. It is now planning a smaller listing at a lower valuation, while completely dropping the offer-for-sale component.
Naspers, Temasek, and TPG Growth-backed API Holdings, which operates e-pharmacy provider PharmEasy, may reduce its valuation for an upcoming floatation, after initially being estimated at USD 5.6bn in its pre-IPO funding round in October 2021.
MobiKwik, an India-based mobile payments provider, has deferred its USD 255m listing filed in July last year. Its window to go public is set to expire in two months’ time.
For companies looking to list this year, investors will remain “selective and cautious in taking new bets, and are expecting a higher margin of safety in IPOs,” says Nipun Goel, president - investment banking at IIFL Securities. “Good quality businesses at reasonable valuations will continue to generate investor interest,” he adds.
Only eight new-age tech companies (see table below) have filed their draft prospectus with India’s Securities and Exchange Board thus far in 2022, compared with 15 in 2021, according to Dealogic data. They will be hoping the lights are still on for the country’s new-tech hopes.
