We have seen the big story in big tech selloff in the charts and also how Warren Buffett has caught up with Ark Fund and Cathie Woods. What is going to be the India impact? Whether we look at the recent listings and the really big pipeline of upcoming IPOs from a Delhivery to an Oyo to a Pharmeasy.
Let us go to the fundamentals on what is happening. The rally had been largely driven by liquidity globally. The amount of liquidity that was pumped into the system was chasing new age technology stocks. The entire stock markets across the globe have been on an upswing. Second, the interest rates were at a very subdued level and when interest rates start rising, the companies which have a long earnings equation into their business model – the PE – start getting rerated. That is what we are seeing with liquidity being one factor and the interest rates supposed to rise and they are expected to go to 2.5-3% in the US. That has completely rerated the entire price to earning dynamics and that is where we are seeing the selling pressure globally coming right.
It has not lifted India as well because all of the Indian companies that have got recently listed, have a very long 10-year earnings to come in, the profitability is not yet there and that is why the discounting changes and that is where the price to earnings changes and that is why the impact.
Give us a sense of how people in India are responding? Rajeev Misra of SoftBank has said, Shailendra Singh of Sequoia Capital has also publicly stated that we need to start talking about unit economics and start having a road to profitability. Is the era of crazy money behind us? What is happening with the HNIs and family offices as the fear of missing out (FOMO) is becoming JOMO (Joy Of Missing Out)?
That is a nice way of putting it. We have seen a lot of companies raising money. The India story remains intact. We will continue to see growth coming in the ecosystem because we are at the tip of the iceberg. We have not one gone down the entire Bharat story yet which has not yet been played out.
All the e-commerce players that we are seeing – listed and unlisted – have the same 100 to 150 million customers which is largely in urban centers. The Bharat story has yet to play out in India and that is why I said the startup story is a 10-year story in India. You will have these kinds of blips because of course the listed stocks are very high beta stocks; they are momentum stocks. When the times are right, they will do very well but when the tide turns out, they will be largely impacted along with the market and these stocks will react much sharper.
So volatility will continue in the listed space. Coming to the unlisted space, what we had seen in the last two years, will play out. A fundraise cycle for any company ideally in a normal scenario should be around 12 to 18 months. It had gone to euphoric levels where we are seeing fundraises happening every four months. Is that wrong? No one can answer that but I think there was a little bit of euphoria. The FOMO was huge, funds were writing term sheets in 48 hours. It was a sellers market and with that happening, now the tide will turn. We will slowly start seeing the impact coming in that space and all the leading names have already called it out.
In India we have brilliant ideas, brilliant entrepreneurs, brilliant funds. Good companies, good values will continue to get the backing but we are also seeing a lot of companies which are pretty old. They were getting funded in their early stages. On a lot of those things, we will see a lot of caution coming in. We will see funds being careful while deploying and having said that, the good companies will continue to have a good run. I would not expect valuations to be impacted too much in companies which are run well and which are on a high growth trajectory and are solving problems.
But when one goes down the curve, the risk pricing comes in and that is what we will see. On the family office and ultra HNI front, we have not seen too much of a FOMO. There was a good amount of value picking. They were very conscious about what they are writing cheques on and where they are writing cheques. I think that again will continue. We will see some amount of sanity coming in. Each and every company will or may not get funded but overall headline numbers would remain intact. I would foresee 2022 again to be a good year for the start-up ecosystem apart from a small blip that you will see for some time now.
Source: The Economic Times
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