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More money chases Indian tech start-ups as investors shun Chinese names

Zomato Food Delivery Partner can be seen on a street in Kolkata, India.

Debarchan Chatterjee | NurPhoto | Getty Images

At a time when investors are selling Chinese tech stocks, more money is chasing Indian startups.

Zomato grocery delivery app stocks rose as much as 82% on its debut Friday on the National Stock Exchange of India. The IPO cost Rs 76 per share, or just over $ 1 per share. The stock opened more than 50% higher and valued the company at approximately Rs 910 billion, or $ 12.2 billion.

Jayasankar Venkataraman, Head of Equity Capital Markets at Kotak Investment Banking, said ahead of trading that the IPO was 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 startups across India.

Tech giant Uber sold its Indian grocery delivery business to Zomato last year in an all-stock deal that the US company was involved in. Other prominent supporters of Zomato include Indian Internet company Info Edge, Alibaba subsidiary Ant Group and Singapore state investor Temasek.

Sources told CNBC that after listing in India, Zomato plans to make its US debut

As to which companies will go public next, Suri said he is betting on Paytm, which claims Japan’s SoftBank, Ant Group and Berkshire Hathaway among its supporters.

Indian payments company Paytm recently filed its IPO papers with the aim of raising $ 2.2 billion on its public debut this November.

Overall, Indian startups raised $ 12.1 billion in funding in the first six months of the year, compared to $ 5.3 billion in the same period last year.

What is behind the recent turnaround in 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 history in the city.

“China doesn’t have many young people. India does. The Indian economy has a growing middle class and a dynamic workforce: one of the largest populations in the world. It is very attractive from a longer-term perspective.” Dash said.

CNBC Pro’s Stock Picks and Investment Trends:

Amit Anand, co-founder of publicly traded fund company NextFins, anticipates Indian technology IPOs will come at a higher price compared to Chinese companies as internet penetration grows.

“Investors recognize the long runway for Internet penetration. Ecommerce penetration in India is 7% versus 25% in China. Smartphone penetration in India is around 30%, less than half of the 60% in China, ”said Anand, who was previously at Axial Capital.

Anand and his partners at NextFins launched the Nifty India Financials ETF on the belief that investors would want more exposure to India’s secular growth story, especially as internet and smartphone penetration continues to rise. INDF’s assets have tripled since the start of the year and are up 50% since June.

“Investors bet that when these people enter the labor market they will consume more and need financial products like credit cards, mortgages, and auto loans. Because of this, e-commerce and fintech companies are the main recipients of venture capital investments in India, ”noted Anand. With more tech companies going public in India, he now plans to launch an ETF that will focus on Indian tech stocks.

“The tech indices in India currently track the major outsourcing companies; there is no way for investors in India or the US to target faster-growing Internet companies,” he said.

Some of the country’s unicorns, these $ 1 billion or more worth of companies, continue to take on extra rounds and capitalize on the keen interest in Indian technology. The hotel start-up Oyo, supported by SoftBank, raised another 660 million US dollars. Flipkart e-commerce platform raised $ 3.6 billion at a mega-high valuation of $ 37.6 billion, the largest fundraiser for an Indian company. Key investors include the Canada Pension Plan Investment Board and Walmart.

As in China, there are data protection issues in India. Last week, Indian regulators banned Mastercard from issuing new credit cards to customers in the country after failing to comply with data protection regulations. The key question venture capitalists are trying to answer is whether the Indian government will go its own way or follow China’s lead on overseas regulation and listing.

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