Despite a challenging macroeconomic environment, India has the potential to witness about 80 public listings in the next five years if startups choose a focused and goal-based approach to their listing journey, a report by Redseer Strategy Consultants has said.
“Challenging market conditions may have impacted valuations of tech companies a bit more than others, but the potential is out there, especially for this sector."
According to the report, India saw about 19 startups going for an initial public offering (IPO) recently, with some of the notable ones including Delhivery, Tracxn, Sula Vineyards, among others. It expects that with 9 startups having already filed their draft red herring prospectus (DRHP) with the regulatory body, and about 10 of them working on their DRHP drafts, over 80 startups may consider public listings in the next five years.
“Whatever the goals may be, you have the time and scope to achieve much better outcomes before the IPO and showcase it strongly,” Rohan Agarwal, partner at Redseer Strategy Consultants said.
Agarwal added that startups must focus on metrics like market leadership, a visible and addressable market, multiple use cases, predictable revenue, high operating leverage, sustainable unit economics and a clear path to profitability.
Redseer Consultants also sees a growth potential for tech and new-age companies considering these entities currently constitute a much smaller share in the domestic public market capitalization. While about 25% of the market cap in the US market could be attributed to tech or new-age players, India only sees a 1% contribution from these companies currently.
“We are just getting started with the journey of startups and their path to profitability,” the report noted.
However, it observed a steeper decline in the stock performances of Indian technology IPOs vis-a-vis other consumer companies. The report cited the worsening macroeconomic environment as one of the key reasons behind the more pronounced decline.
It points out that while traditional IPOs in India saw a milder drop in their valuations, faring at about 1.2-2.9x their listing valuation, tech/new-age listings were further hit, thus faring at about 0.2-0.9x of their valuation during IPO.
Sharing a similar view on the sector, Coller Capital, in its Global Private Equity Barometer, highlighted that volatility in the global macroeconomic environment reduced venture capital companies' interest towards investments in technology, as per a view shared by almost half of the limited partners (LPs) surveyed for the report.
Funding in the tech sector was also hit in 2022, according to a report by market intelligence platform Tracxn. It pointed that while overall funding volumes in India dipped about 35% in 2022 (until 5 December), fintech and edtech were among the worst affected as funding plummeted 57% and 39% in these sectors.
