A View on the Next Decade of Tech in India
Indian tech cycle has come of age in a very interesting manner in the last few years. We have seen the massive creation of unicorns, the downfalls of some of them, spectacular IPOs and post-IPO rationalisation in the markets, too. India has produced 108 unicorns valued at $340 billion by 2023, followed by market corrections for companies like Zomato and Paytm. Unlike the harsh "tech winter" experienced globally, India's downturn was relatively mild. Now, we're seeing a more mature phase, and this time with a lot more rational views on valuations. Growth-stage funding is rebounding, with $1.6 billion raised in H1 2023.
India’s tech sector is projected to contribute 10% to India's GDP by 2030, with 150+ new unicorns expected by 2025, indicating strong long-term growth potential.
This has us incredibly excited about the path ahead for tech in the coming decade. Writing about the coming decade seems off while writing it in 2024, but cycles operate more on patterns and milestones and less on the completeness of calendar decades, which makes now a better time than any to form a view of the future and begin to explore the macro position that tech could find itself in a decade.
The idea of a loss-making tech company that would be publicly listed was not something that anyone would even bother to discuss a decade ago. Now it seems commonplace. But what's more interesting is the impact this could have on the landscape of publicly listed tech companies in India.
There are a total of 5,309 listed stocks on the Bombay Stock Exchange (BSE) as of January 24, 2024, with a market capitalisation of ₹37,636,886.59🔗. Additionally, there are 2,266 listed stocks on the National Stock Exchange (NSE), with a market capitalization of ₹3,581,291,532. While there are a large number of companies listed, when you view them by market cap, the funnel narrows really quickly. Only less than 10% of the publicly listed companies can today boast of a unicorn status.
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With ~500 listed unicorns in the public space, the private listed market is suddenly very lucrative. And while we have around 114 unicorns in India at the time of writing this, we should be realistic and apply a conservative discount on how many of them can IPO while sustaining these valuations. But even at about 50% of them making it, we are still looking at private markets adding about 10% to the pool of 500 listed unicorns which is a fascinating outcome to look for in the next decade.
The India investors, both retail and institutional, have also shown immense love towards tech stocks and have been rewarded for it. Zomato did its IPO at a 15k EPS at a share price of INR 77. This, however, came crashing in early 2023, with a share price of around INR 43 even though the company improved its EPS to -1.38. However, today, at 0.4 EPS, Zomato's stock price hovers at INR 184 at a staggering 450+ P/E.
The Indian stock market has a massive scarcity of tech stocks, and the investors have shown a huge appetite to pay premiums for it. In fact, Nykaa today trades at a 1544 P/E which is a multiple that no founder could ever dream to get in the private markets despite all the talks about irrational valuation in privates. And this isn’t the case just for new age tech, even IndiaMart (43 P/E) and Infoedge (114 P/E) lead the market in terms of average P/E by a huge margin.
To put things in context, the average P/E of top companies in India fall in the 15-20 range. This is why we strongly believe that the golden age of Tech IPOs is yet to come.
The new-age digital companies have also reciprocated well by delivering impressive performance. The slide below is the P/E for Mamaearth, a company that was trading at 600 P/E and then crashed to ~100 P/E when it increased its profits sixfold. Such efficiencies in operations and scale in profits are the hallmark promises of digital companies, and markets have been rewarding them highly when the companies deliver on these promises.
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India has a total of 114 such unicorns waiting to go public. On top of that, there are 200+ startups that are valued anywhere between 200mn to 1Bn which will either graduate into unicorn status or aim for sub unicorn IPOs further adding to the pool of tech companies that will get listed publicly.
This is a great opportunity to reshape the stock markets as we have come to know it and we are excited to see this play out in the next decade. Zomato is also currently the only new-age digital stock listed in the Nifty Next 50 index, and it isn't unreasonable to assume a few more are being added there soon. In fact, Zomato today has a market cap higher than some of the Nifty 50 companies too. We are very keen to see how an index recomposition plays out in the next two decades where all Indian indexes start to truly reflect the tech promise that India carries.
The public markets have been as much, if not more favourable towards the tech stocks than the private markets itself, and it should be a massively encouraging factor for a lot of tech entrepreneurs to consider a path to IPO. It wouldn’t be a surprise if 20% of the indexes in the next two decades would be made up of tech stocks in different sectors. It is not without precedence either. The video below of how tech companies took over S&P in the last 4 decades tells of how much momentum tech companies can bring into business growth across sectors.
Given all this, we are excited to work with our portfolio founders to see what their paths to profitability, scale, and eventually going public look like. Given the sheer volume of tech talent in India, the scale of innovation and the pace of change, we think India will achieve what tech companies globally have achieved, but in a much shorter time span. The next decade will lay the foundation for this, and most importantly, the founders who are first movers in going public in their respective sectors will get massively rewarded for their audacity, discipline, and execution.
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