At a time when investors are selling Chinese tech stocks, more money is chasing Indian startups.
Shares of food delivery app Zomato soared to 82% when they debuted on the National Stock Exchange of India on Friday. The initial public offering was priced at Rs 76 per share, or just over $ 1 per share. The action opened more than 50% more, valuing the company at around 910 billion rupees or $ 12.2 billion.
Jayasankar Venkataraman, head of equity capital markets at Kotak Investment Banking, said before negotiations began that the IPO had been oversubscribed for institutional and retail investors.
“I think Zomato’s successful IPO could open the floodgates,” said Anirudh Suri, founding partner of the India Internet Fund. Suri has invested in 20 start-ups across India.
Tech giant Uber sold its food delivery business in India to Zomato last year in an all-stock transaction that gave the American company a stake. Zomato’s other main backers are Indian internet company Info Edge, Alibaba Ant Group subsidiary, and Singaporean state investor Temasek.
Sources told CNBC that after listing in India, Zomato planned to debut in the United States.
As for the next companies to go public, Suri said he is betting on Paytm, which claims Japanese companies SoftBank, Ant Group and Berkshire Hathaway among its backers.
Indian payments firm Paytm recently filed its IPO documents with the aim of raising $ 2.2 billion on its public debut in November.
Overall, Indian startups raised $ 12.1 billion in funding in the first six months of the year, compared to $ 5.3 billion raised in the same period last year. according to Venture Intelligence.
What is behind the recent pivot to India?
Somesh Dash, general partner at venture capital firm IVP, said investors are waking up to the idea that China no longer has the best growth story in town.
“China doesn’t have a lot of young people. India does. What the Indian economy presents is a growing middle class and a vibrant workforce: one of the largest populations in the world. It’s very attractive from a longer term perspective, ”Dash said.
Amit Anand, co-founder of exchange-traded fund company NextFins, expects IPOs of Indian technology to be listed at a higher multiple of Chinese companies, citing the growth in penetration of Internet.
“Investors recognize the long track of Internet penetration. E-commerce penetration in India is 7% versus 25% in China. Smartphone penetration in India is around 30%, less than half of 60% from China, ”said Anand, who previously worked for Axial Capital.
Anand and his NextFins partners have launched the Nifty India Financials ETF confident that investors will want more exposure to India’s secular growth, especially as internet and smartphone penetration continue to increase. INDF’s assets have tripled since the start of the year and are up 50% since June.
“Investors are betting that as these people enter the workforce, they will consume more and need financial products such as credit cards, mortgages and auto loans. This is why e-commerce and fintech companies have been the main beneficiaries of venture capital investments in India, ”noted Anand. With more and more tech companies listed in India, he is now considering launching an ETF focused on Indian tech stocks.
“Technology indices in India are currently tracking large outsourcing companies; there is no way for investors in India or the United States to target faster growing internet companies,” he said.
Some of the country’s unicorns, those companies worth $ 1 billion or more, continue to raise additional rounds, capitalizing on the strong interest in Indian technology. Hotel start-up Oyo, backed by SoftBank, has raised an additional $ 660 million. Ecommerce platform Flipkart has raised $ 3.6 billion for a mega-high valuation of $ 37.6 billion, the biggest fundraiser for an Indian company. The main investors are the Canada Pension Plan Investment Board and Walmart.
As in China, data privacy concerns exist in India. Indian regulators last week banned Mastercard from issuing new credit cards to customers in the country after failing to comply with data privacy rules. The key question venture capitalists are trying to answer is whether the Indian government will chart its own course or follow China’s lead on matters related to regulation and overseas listings.