The flop probably won’t halt the coming unicorn stampede into India’s market. But their IPOs may need to be priced a little more reasonably (AFP)

Paytm flop will skim froth off India’s IPO market


India’s largest ever preliminary public providing was a flop. That will give sentiment within the red-hot market a wanted actuality examine—however it’s unlikely to derail the IPOs of the various different Indian unicorns champing on the bit.

Shares of SoftBank Group and Berkshire Hathaway-backed One 97 Communications, the dad or mum of Indian digital funds big Paytm, fell 37% within the first two buying and selling days after Paytm went public. The inventory has since rebounded however remains to be 17% beneath its IPO value.

That poor efficiency bucks the pattern of this yr’s expertise growth in India. IPOs amounted to $14.6 billion this yr in line with Dealogic—already a file quantity. And traders have reaped large earnings. Shares of meals supply firm Zomato and FSN E-Commerce Ventures, which owns on-line beauty retailer Nykaa, have each greater than doubled from their IPO value. Goldman Sachs expects one other $50 billion value of IPOs within the subsequent two years. SoftBank-backed lodge chain Oyo and logistics firm Delhivery have already filed to listing. Cash has additionally rushed into the non-public market: Enterprise capital funding final quarter amounted to a file $14 billion, in line with KPMG.

The big measurement of Paytm’s IPO—it raised round $2.5 billion—is one cause why the market is coping with a bout of indigestion. However the firm additionally priced its IPO very aggressively given there may be nonetheless no clear path to profitability. Robust competitors from Google and Walmart-backed PhonePe and potential regulatory dangers added to investor issues.

The Indian market as a complete has additionally gotten a bit frothy. The MSCI India has gained 27% in 2021, making it among the best performing markets on this planet. China’s regulatory crackdown has most likely despatched some overseas traders looking for development in India. The MSCI China is down 17% in 2021 and expertise giants like Alibaba and Tencent proceed to be harried by regulators.

Particular person traders in India have added one other large push. The variety of buying and selling accounts and total quantity of retail fairness possession each hit new highs this yr. There have additionally been file inflows into mutual fund funding plans.

Earnings development has been robust however can be largely priced in already. The MSCI India is buying and selling at a 60% premium to Asia-Pacific ex-Japan, in line with Goldman Sachs—in contrast with a long-term common premium of 27%.

Given India’s big potential—a rustic of 1.4 billion with low ranges of web service use—there isn’t any lack of curiosity in leaping into the market. However the Paytm debacle is a well timed reminder that the market isn’t keen to pay any value for that potential.

The flop most likely received’t halt the approaching unicorn stampede into India’s market. However their IPOs could must be priced a little bit extra fairly.

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