A promising year for India

Harish Talreja
25th January 2022

Public markets are currently hammering all stocks due to the interest rate reset taking place... the good ones will emerge stronger and need not worry given their fundamentals. However, the public market investors need to learn how to value loss-making businesses as well.

It’s a new year, and so far, an eventful first month for investors, entrepreneurs, and the stock markets. This blog takes a look at the start-ups that turned unicorns last year or went public recently and assesses the reaction from the investor community, primarily focused on the valuation. I’m also sharing some thoughts on the way public markets are evaluating businesses that are redefining the way India orders food, shops for products and consumes media content.

In 2021, 42 Indian start-ups entered the unicorn club, up from 10 start-ups that turned unicorn in 2020. This is a result of the excellent execution by start-up entrepreneurs across India and investors willingness to participate in India’s growth story. It gives investors in the public and private markets a clear signal that start-ups in India are scaling up and consumers need to access their services or products on a daily basis. As we wrote mid-last year, the party is just getting started.

From the public market perspective, we noted 63 companies going for a public listing last year and this included about 13 start-ups or venture backed businesses. These 13 start-ups collectively raised $6.5Bn of capital from public market investors. As a fund, we tried to understand more about the companies accessing the public markets. We also tracked how these companies have been performing before and after going public which helps us learn how distinct set of investors value the same business. The public market volatility creates unnecessary noise and impacts company valuation on a daily basis versus the stagnant valuation from one funding round to the next. This stagnation prevails for several months at times, unless they raise the next round of financing from venture capital or private equity investors.

Some companies that recently went public and sparked our interest demonstrate interesting performance parameters. A few high-growth tech stocks that shot up in valuation last year are returning to reasonable valuations in anticipation of the US Fed increasing interest rates. The increase in interest rates by the US Fed pulls out liquidity from the financial markets. The reason high-growth tech stocks witnessed a sharp rise in their stock price was primarily because of the excess liquidity in the system. The other reason is the Fed printed billions of its own currency during 2020 and 2021 and started buying US 10-year bonds, flooding the market with additional liquidity. Now, it is slowing down this quantitative easing affecting liquidity and impacting inflation.

The table below displays the performance of a select set of tech companies post their listing and from their peak valuation:

Based on our assessment, from the above list, the most affected companies are the loss-making tech start-ups. It is also interesting to note how the market capitalization of certain companies has increased or decreased since the time it went public. Some reached an all-time high, others crossed an all-time low and the ‘today’ column reflects their market capitalization as on 25th January 2022.

Additionally, in the global markets, the following stocks are significantly down since their IPO in 2021:

· Robinhood is down 60% since its IPO on 30th July

· Rivian is down 46% from its peak after listing on 19th November

· Nikola is trading below its SPAC price of $10, after touching a peak of $65.9 on 19th Jun 2020

India’s monetary policy is independent of the US Fed; however, the US is looked up to as the “Mother ship” and any winds of change in the US affect India too. Also, the markets tend to be coordinated with each other, given common large investors investing globally across the US, Europe, India, and Asia. We shared our thoughts on this linkage between the India and US markets last year, you can read about it here. We are already seeing the rate hikes starting to be factored in across Indian stocks as well.

There is going to be a new dimension for public market investors to evaluate and assess loss-making, high-growth, venture backed tech companies. Thus, some or most of these companies that went public over the last year could face deterioration in their stock price and re-rating of their market capitalization based on valuation multiples in the short term. Companies might also decide to look, before they leap to access the public markets. Hopefully, it doesn’t result in a pause to the flurry of funding for Indian start-ups right after we scratched the surface.


We are excited about the months ahead and are closely watching companies planning to raise their next round of early or growth stage financing. Whether they are soonicorns, unicorns, decacorns or have announced plans of going public.

Given the volatility in the public markets over the last couple of weeks, we wanted to re-iterate our thoughts and belief. The overall index and stocks across the broader markets might display a lot of weakness, however, like every time, businesses built on strong foundations and business models, will survive and in fact, thrive. The Indian economy is poised for massive value creation over the next decade and more with the key driver being the start-up ecosystem. A lot of start-ups in India seem exciting and promising, we think this could be the best year for start-ups accessing the public markets. Consumers are validating their business models by continuing to transact and increase their interactions with platforms such as Zomato to order food, Nykaa to shop for beauty and others in the essential category. Though there are differing views on profitability and valuation today, these businesses have changed the way India shops, transacts, and consumes content among other things. The risk appetite and liquidity will continue to be volatile due to various macro factors, however, the medium to long term view remains promising for India.

We look forward to sharing more of our thoughts and learnings in the coming months and learning from you about things we should include in the future, do write to us!