India may see over 100 large-scale profitable/path-to-profitability start-ups in the next five years. With about 20 of them already being listed, about 80 start-ups have the potential to look at an IPO journey, according to a recent report by Redseer Strategy Consultants.
The consulting firm added that India has significant room for growth in public market cap compared to other countries. This becomes even more pronounced when compared to the tech/new age ecosystem. From about $43 trillion market capitalisation in the US, about 25 per cent can be attributed to tech/new age companies; this includes giants like Apple, Amazon etc.
In India, with about a $3.9 trillion market capitalisation, only about 1 per cent can be attributed to tech/new age companies. “We are just getting started with the journey of start-ups coming up and going towards their path to profitability, then looking at that public market journey. While the markets have been challenged, which has impacted the valuation of the tech companies a bit more than others, the potential is out there, especially for tech,” the consulting firm said
The stock performances of tech IPOs compared to other consumer companies have seen a steeper crash. The big reason behind this is the global macro situation, as profits are a lot more valuable in the current situation. Moreover, tech companies have now prioritised growth, finds a recent report by Redseer Strategy Consultants, authored in collaboration with HSBC. The report was launched at Ground Zero 7.0, a new-age business summit hosted by Redseer Strategy Consultants.
A typical company that would be cash flow positive two years from now would see discounting of at least 20-30 per cent of their valuations in a low-interest rate situation, which goes up significantly in a high-interest rate situation that we are seeing right now. “When we look at similar situations in the past 20-odd years, we realise that it still takes a bit of time for markets to come back sustainably, even after the interest rates start dropping. Because, in effect, the market rates would have already factored in the decreasing interest rates into the prices. The learning is that there may be more time, maybe a few quarters, for the markets to recover. We always see IPOs bouncing back post downturns,” said Agarwal.