Introduction
Development of start-ups is disrupting the legacy business practices and eating into the market share of various segments. A rising number of Indian start-ups are planning to get listed as the ecosystem matures. 57.7% start-ups are expected to go public within five years, according to an RBI survey conducted between April and November 2020. Start-ups and unicorns (valued at more than US$ 1 billion), such as Pepperfry, Ola, Oyo, Byju's and Paytm, have been planning to debut in capital markets for some time now. Several Indian start-ups such as Zomato, Delhivery, Policybazaar, Freshworks, Flipkart and Nykaa are potentially looking at public markets in 2021.
Drivers
Rising online gaming industry
The online gaming & entertainment industry is witnessing strong growth in India, driven by restricted movement because of coronavirus-imposed lockdown. The industry valuation reached US$ 90 billion in FY20 from US$ 62 billion in FY19, according to Inc42 Plus estimates. The market is projected to increase by 6.1% in the next five years.
The Indian mobile gaming market was estimated at US$ 1.2 billion in 2020, grabbing the sixth spot globally. In 2021, India, with a user base of ~ 326 million, is anticipated to be among the top five markets for mobile gaming.
Strong Indian tech start-ups ecosystem
From 2020 to 2021, the tech start-ups ecosystem will witness stable YoY growth of ~8–10%. In 2020, start-ups raised significant funding, as Covid-19 fuelled the e-commerce market for fast deliveries of essential goods, food & fresh produce, ready-to-eat foods, and concierge and logistics. Overall funding in tech start-ups almost doubled in 2020. The food segment raised US$ 1.3 billion funding, logistics (US$ 965 million), education (~US$2.1 billion) and e-commerce (US$ 779 million).
Start-ups preparing for IPOs in 2021:
Key Start-ups |
Current Valuation |
Zomato |
US$ 3.9 billion |
Policybazaar |
US$ 1.5 billion |
Nykaa |
<US$ 1 billion |
Flipkart |
US$ 24.9 billion |
Delhivery |
US$ 1.5 billion |
Start-ups joining the unicorn club
In 2020, 12 start-ups including Razorpay, PineLabs, Zerodha and Postman joined the unicorn club, the highest ever in a year. Of the 12, ~ 58% market share was captured by B2B tech start-ups. Paytm held the leading position in India as the most valuable unicorn at US$ 16 billion, followed by Byju's.
NASSCOM is positive that the start-up IPO will expand in 2021, with many major players (E.g., Freshworks, Druva, PolicyBazaar and Delhivery) planning to go public. Tech and new start-ups are anticipated to fuel growth at a CAGR of 40–45%. In 2021, India is set to have a strong unicorn club of more than 50.
E-commerce major Flipkart, food technology start-up Zomato and furniture e-tailer Pepperfry are also preparing to go public in 2021.
Nykaa, which was founded eight years ago, is expected to be India’s first online beauty marketplace to launch an IPO (US$ 3 billion) in 2021.
Trends
Strong rebound in IPO activity
In the fourth quarter of 2020, India registered 19 IPOs (including SMEs; US$ 1.84 billion) with Indian Stock Exchanges (BSE and NSE) versus 11 for the corresponding period last year. According to EY India IPO Trends Report: Q4 2020, India ranks ninth globally in terms of the number of IPOs in 2020, with 43 IPOs raising US$ 4.09 billion.
In the IPO markets are experiencing strong momentum and increased demand from businesses across industries seeking to raise capital in the near term. Further, businesses are confidently predicting guidelines for direct listing in international markets. The market sentiment is optimistic for 2021 to be a successful year.
Increasing technology IPOs
In 2020, more internet and technology businesses went public. Three of the 22 businesses listed in 2020 were Internet and technology firms, up from only one in 2010 when MakeMyTrip made its market debut.
In January 2021, Nazara Technologies Ltd. filed initial public offering documents with the Securities and Exchange Board of India (SEBI), India’s market regulator, and became the first Indian gaming technology company to seek a market debut. For Nazara and its peers, emergence of affordable smartphones and slashed mobile data rates (for 1.3 billion people) were the growth enablers. The company's website hosts many types of content and is involved in e-sports; it has titles such as the World Cricket Championship (in mobile cricket gaming) to its credit.
Government Initiatives
SEBI has proposed new norms for inclusion in the Innovators Growth Platform (IGP) to boost funding from qualified institutional buyers (QIBs) and lead further exits from upcoming start-ups.
Conclusion
India's IPO market recorded significant growth in 2020 and the trend is likely to continue in 2021. The market growth in FY20 increased 2.25x to Rs. 45,000 crore (US$ 6.16 billion), up from Rs. 20,300 crore (US$ 2.78 billion) in FY19.
There are certain growth opportunities that push start-ups to raise funds through IPOs and provide a healthy exit for investors. SEBI's new standards such as efficient migration to the main board, reduced holding time and special rights have made IPOs more attractive.