India is poised to be the next big thing in technology investment. Foreign portfolio managers who have thrived backing China’s digital trailblazers will be closely examining the hot list of upcoming initial public offerings in Mumbai. Zomato’s successful market debut suggests similar valuations and returns are available.
The food delivery company’s lack of profit meant it had to sell a bigger proportion of its $1.3 billion offering to large funds. It didn’t dampen enthusiasm. After a 66 per cent pop on the first day of trading on Friday, Zomato is valued at $13.3 billion, or a stomach-churning 50 times sales for the year to March.
Expanding market
It’s one of about 100 Indian unicorns — start-ups privately valued at more than $1 billion — worth a combined $240 billion, per Credit Suisse. Financial technology super-app Paytm, online insurance market Policybazaar, educational technology darling Byju’s, and Sephora-like online beauty retailer Nykaa are among those that could receive exuberant receptions.
They’ll add fuel to a relatively scorching market. Over the past 10 years, the MSCI India index has been trading on average at nearly 17 times forward earnings compared to 11 times for MSCI China, according to Refinitiv. Measured in local currency, the Indian tracker has delivered double the shareholder return over the past decade.
Zomato IPO
Recent IPOs augur well too. Indian companies that went public last year are outperforming the global average, using data from research outfit Dealogic. New money will add froth: A mere 3 per cent of Indians invest in the stock market directly or through mutual funds, compared to 13 per cent in China, based on figures cited in Paytm’s IPO prospectus.
Just as Alibaba and Facebook dominate respectively in China and the US, there are likely to be a handful of big winners in India. Zomato, for example, operates in a duopoly against SoftBank-backed Swiggy.
Demand for Zomato’s shares was helped by technical factors that will support its inclusion in key indices over time. Even so, the success will be a beacon for equity issuers and capital. Domestic firms contemplating overseas listings, including Walmart’s Flipkart and Oyo Hotels & Homes, may consider staying at home. And China’s sharp regulatory crackdowns across its various tech-powered sectors will redirect money to India.