Praveen Sinha - Jabong Cofounder feels The next wave of stock market will be kick started by startup IPOs
Despite the after effects of the coronavirus pandemic, India’s stock market continues to perform and break new all-time highs across indices. Successful IPOs of the likes of Burger King and Indigo Paints have reflected a strong sentiment in the market for projects with strong fundamentals and I expect the same to be the case for the IPOs of India’s internet age startups, said Praveen Sinha Jabong Co Founder. Several Internet companies are in discussions to go public in the near future, if you are to believe media reports and inside sources and some of the names that have floated about include the likes of Food Tech giant Zomato, fashion retailer Nykaa, Logistics giant Delhivery, E-retail Unicorn Flipkart and Insurance and Fintech aggregator Policybazaar.
The challenges for an Internet Company IPO
Compared to the traditional segments that are a part of India’s stock exchanges the internet companies are a different game altogether. Institutional investors like to see green balance sheets in the companies they invest in unlike the new age investors who may be enticed into an investment based purely on hype. However barring Nykaa, not many of India’s internet startups can boast of net profits in their balance sheet. “Internet startups are ambitious, they have managed to capture international investments, grow quickly and even acquire millions of customers in record time. However, profitability and sustainability remain challenges in an ecosystem where competition is aplenty and hence, margins hard to come by”, explains Praveen Sinha Jabong Co Founder.
Hence, it will be more than interesting to follow how these touted IPOs perform in the near future because they will set the precedent for how India’s stock markets perceive this new segment as an investment opportunity. “We have seen internet companies like Tencent, Alibaba, Amazon & Netflix perform admirably in the international stock exchanges of countries such as China and the USA, but it is imperative that the companies show profits instead of lofty projections in the long run”, added Praveen Sinha. Also, the Securities and Exchange Board of India (SEBI) needs detailed information on business plans, risks, profits expected and expenditure outlays to be eligible for a listing on a nationalised exchange.
India’s internet companies have shown cognizance to the requirement of transparency, to attract eyeballs before going for their IPOs. Many of them have started reporting financials regularly to the public, switching to leaner forms of operations to cut losses, hiring seasoned financial experts to manage the books and bringing more focus to the organisational goals and ambitions. Market skeptics would say that investors shouldn’t make investment decisions based on a company’s valuations but given the buzz in the market right now and the risk appetite of a new breed of young retail investors, the internet companies could very well command a premium on listing. “History is an indication that India’s markets look to the west for sentiment and with the likes of Airbnb, tripling their market cap on listing recently, the time could be ripe for India’s internet giants to make the leap”, concluded Sinha.