Indian tech braces for its second coming of age

An employee works on a computer terminal against the backdrop of a picture of late Apple co-founder Steve Jobs at the Start-up Village in Kinfra High Tech Park in the southern Indian city of Kochi October 13, 2012. Three decades after Infosys, India's second-largest software service provider, was founded by middle-class engineers, the country has failed to create an enabling environment for first-generation entrepreneurs. Startup Village wants to break the logjam by helping engineers develop 1,000 Internet and mobile companies in the next 10 years. It provides its members with office space, guidance and a chance to hobnob with the stars of the tech industry. But critics say this may not even be the beginning of a game-changer unless India deals with a host of other impediments - from red tape to a lack of innovation and a dearth of investors - that are blocking entrepreneurship in Asia's third-largest economy. To match Feature INDIA-TECHVILLAGE/ Picture taken October 13, 2012. REUTERS/Sivaram V

MUMBAI, June 10 (Reuters Breakingviews) - It’s shaping up to be a defining year for Indian technology. Startups like food delivery service Zomato and digital payments star Paytm have grown fast aided by rapid smartphone adoption. Oodles of foreign capital helped too. As business and funding models evolve, a stack of upcoming initial public offerings spotlights new challenges.

The rise of Indian outsourcers such as Tata Consultancy Services (TCS.NS) in the 1990s defined the first golden age. Today, the country is home to about 100 unicorns – unlisted, mostly young tech companies valued at $1 billion or more - Credit Suisse estimates. Biggies include Walmart-owned (WMT.N) e-tailer Flipkart, which is raising funds at a mooted $40 billion valuation and eyeing a listing in New York over the next year or so.

Those offering their shares at home including loss-making Zomato and online beauty store Nykaa will help reshape a $2.9 trillion equity market. To date, India’s most richly valued stocks include HDFC Bank (HDBK.NS) and consumer goods company Hindustan Unilever (HLL.NS). Just two firms in the benchmark Nifty 50 Index have negative earnings per share, according to Refinitiv. The new issues will add froth and red ink to the market.

The tailwinds are strong, though. Mobile data in India is amongst the cheapest in the world; credit goes to Mukesh Ambani whose Reliance Industries (RELI.NS) led a bruising price war. Sending digital money is easy thanks to official efforts to roll out bank accounts and a biometric identity system for all. Financial technology upstarts like Paytm, which is planning a mooted $3 billion float this year, have capitalised on the country’s pioneering payments system.

New barriers to inbound Chinese investment adds an extra incentive to list. Jack Ma’s Ant, for example, owns a 30% and 17% stake in Paytm and Zomato respectively. As tensions between New Delhi and Beijing simmer, such funding sources look harder to tap and unattractive. For Paytm, the expectation of an exit sooner rather than later by its Chinese backers will create a potential hefty overhang on its stock.

Fortunately, Indian startups are already maturing. Since 2019, top Indian tech investor SoftBank (9984.T) has deployed its capital judiciously, forcing companies to focus on their bottom line. The pandemic helped others to trim subsidies too. Those that enter the public limelight will all be degrees of hot.

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- Indian food delivery company Zomato on April 28 filed a draft prospectus to raise $1.1 billion through an initial public offering in Mumbai.

- Financial technology startup Paytm is aiming to raise about $3 billion in an IPO late this year targeting a valuation of up to $30 billion, Bloomberg reported on May 27 citing a person familiar with the matter.

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Una Galani is Associate Editor of Reuters Breakingviews, based in Mumbai. She covers a cross-section of business, finance, and politics in South Asia. Una was in Hong Kong from 2013 and previously spent three years in Dubai writing about Middle Eastern economies during the Arab Spring. She joined Breakingviews in 2006 in London. In 2016, she won Asia Pacific Best Editorial Comment at the State Street Press Awards and Reuters global analysis/commentary of the year. She read English Literature at St Catherine’s College, Oxford.