Funding winter is pushing fintech firms to go public very early: Nippon India CIO

A dearth of private investment is pushing fintech companies to the public market “very early”, according to Sailesh Raj Bhan, chief investment officer for equity at Nippon India Mutual Fund.

“A lot of fintechs and new-age businesses are saying they’re coming to the market very early because private-equity money has dried up or there’s an exit requirement,” Bhan said at the Global Fintech Fest in Mumbai on 28 August.

Bhan was in conversation with Upasana Taku, co-founder and chief financial officer of IPO-bound Mobikwik, and Saurabh Mishra, executive director, Morgan Stanley Investment Management. He said fintech companies have to compromise on their business model or become self-sustaining because they can’t easily get multiple rounds of capital in public markets unless they demonstrate growth.

Fintech companies such as Mobikwik, Phonepe, Razorpay, Groww, among others, have either filed their draft IPO papers or have shown interest in going public in the next two years. Non-fintech startups that recently went public include Ola Electric, FirstCry and Unicommerce.

Funding winter

India’s fintech sector has experienced a significant setback in recent years as the global funding winter has led to a dramatic decline in investments. According to a Tracxn report, funding for Indian fintech firms fell by 59% year-on-year in the first half of 2024, from $1.93 billion to $795 million. Companies such as Mobikwik and Razorpay raised their last private funding rounds in 2022.

Despite the dearth of funding, regulatory hurdles, cybersecurity threats, and adoption challenges in rural areas, India has one of the world’s fastest-growing fintech markets. Valued at an estimated $110 billion in 2024, it's projected to touch $420 billion by 2029 at a 31% compound annual growth rate (CAGR), according to a recent KPMG report.

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Mishra said companies also face more scrutiny once they go public. “If you tap public market capital, another problem arises. When you’re private, you have a few investors with whom you can share information and align on vision. But once you become public, you have to disclose information for various reasons,” said Mishra, an investor and portfolio advisor on the emerging markets equity team focusing on the India equity strategy.

Profits at last

Talking about whether the era of profitable Indian fintech firms has arrived, Bhan said that businesses within lending, insurtech, broking and wealthtech dominate the profit pool. “We are seeing profits in wealthtech, broking services, lending and insurtech. Some people have executed well in terms of acquiring customers and selling to them. I think that is why funding is moving to these three areas, and we are chasing that,” he said.

Just days ago, Mobikwik recorded its first full-year profit of about ₹14 crore in FY24, following a loss of ₹83.8 crore in FY23. Phonepe, another fintech company, has also achieved operational profitability, it announced earlier this week.

Bhan said unlike private investors, public investors focus on companies that are profitable. “Unlike the VC world, which tracks creation of businesses, we have to see that all these businesses end up with a model where there is money being made,” he said.

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“Our hope for payments is that someday it will become extremely profitable. Someday, through some regulatory support to get the pricing right, payments will bring in a large pool of profits,” said Bhan, who manages marquee funds that are the largest in their categories, such as Nippon India Multi Cap Fund, Nippon India Pharma Fund and Nippon India Large Cap Fund.