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Business News/ Markets / Ipo/  IPO landscape: Challenges and opportunities for Indian unicorns to go public
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IPO landscape: Challenges and opportunities for Indian unicorns to go public

India added 14 new unicorns in 2022, taking the total count to 100, but most have not gone public yet due to regulatory hurdles and high costs.

According to a report by EY, the average cost of an IPO in India is 7 per cent of the proceeds, compared to 4 per cent in the US and 2 per cent in China. (Reuters)Premium
According to a report by EY, the average cost of an IPO in India is 7 per cent of the proceeds, compared to 4 per cent in the US and 2 per cent in China. (Reuters)

India is witnessing a surge of unicorn startups or privately held companies valued at over 8,600 crore, that are disrupting various sectors and attracting global investors. 

In 2022, India added 14 new unicorns, taking the total count to 100, ranking third globally behind the US and China. 

However, unlike their counterparts in other countries, most of these unicorns have not gone public yet, preferring to raise funds from private sources. 

This article examines the reasons behind this trend, the challenges and opportunities for Indian unicorns to go public, and the impact of their IPOs on the Indian economy and society.

Why are Indian unicorns reluctant to go public?

One of the main reasons why Indian unicorns have not tapped the public markets is the lack of a conducive regulatory environment for startups. 

India does not have a dedicated stock exchange for startups, unlike the US, which has the Nasdaq, or China, which has the STAR Market. 

The existing exchanges, such as the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE), have stringent listing norms, such as profitability criteria, minimum promoter holding, lock-in periods, and disclosure requirements, that may not suit the growth-oriented and innovation-driven nature of startups. 

Another reason is the high cost and complexity of going public in India. 

According to a report by EY, the average cost of an IPO in India is 7 per cent of the proceeds, compared to 4 per cent in the US and 2 per cent in China. 

Moreover, the IPO process in India involves multiple intermediaries, such as investment bankers, auditors, lawyers, and regulators, and can take up to 12 months to complete.

A third reason is the availability of abundant private capital for Indian unicorns. 

In 2022, Indian startups raised a record 1,29,000 crore from venture capitalists, private equity firms, and strategic investors, surpassing the previous year's total of 1,18,200 crore. 

These investors offer not only capital, but also mentorship, network, and global exposure to the startups.

Also Read: What is driving IPO rush in Indian equity market?

What are the challenges and opportunities for Indian unicorns to go public?

Despite the reluctance, some Indian unicorns are gearing up to go public in the near future, driven by various factors. 

One of them is the market opportunity and demand for their products and services. 

India has a large and growing consumer base, with over 130 crore people, 70 crore internet users, and 45 crore smartphone users. 

Another factor is the valuation and exit opportunity for the startups and their investors. 

Going public can help the startups achieve a higher valuation, as they can access a wider pool of investors and benefit from the market sentiment. 

For instance, Zomato, an online food delivery platform, became the first Indian unicorn to go public in July 2022 and saw its market capitalisation soar to over 1,08,200 crore on the first day of trading, more than double its pre-IPO valuation of 45,000 crore. 

However, going public also entails some challenges and risks for the Indian unicorns. 

One of them is the scrutiny and accountability from the public and the regulators. 

The startups will have to disclose their financial and operational performance, governance structure, risk factors, and future plans to the public, and comply with the regulatory norms and standards. 

This may expose their vulnerabilities and weaknesses, such as losses, negative cash flows, legal disputes, and competition.

What is the impact of Indian unicorns' IPOs on the Indian economy and society?

The IPOs of Indian unicorns can have a positive impact on the Indian economy and society, in several ways. 

One of them is the creation of wealth and value for the startups, their investors, employees, and customers. 

The IPOs can help startups to raise funds, increase their valuation, and enhance their brand image and reputation. 

The IPOs can also help the investors to exit their investments, earn returns, and reinvest in other startups. 

The IPOs can also benefit the employees, who may own shares or stock options in the startups, and the customers, who may enjoy better products and services from the startups. 

Another impact is the stimulation of the startup ecosystem and innovation in India. 

The IPOs of Indian unicorns can inspire and motivate other startups and entrepreneurs to pursue their dreams and ambitions and create more innovative and disruptive solutions for various problems and needs. 

The IPOs can also attract more investors, both domestic and foreign, to invest in the Indian startup ecosystem, and provide more capital, mentorship, and network to the startups. 

The IPOs can also foster a culture of entrepreneurship and innovation in India, and encourage more people to start their own ventures or join the startups.

A third impact is the contribution to the economic growth and social development of India. 

The IPOs of Indian unicorns can create more jobs, income, and tax revenue for the Indian economy, and support various sectors and industries. 

The IPOs can also enable the startups to expand their operations, reach, and impact, and serve more customers and markets, both in India and abroad. 

The IPOs can also help startups address some of the social and environmental challenges and opportunities in India, such as financial inclusion, education, healthcare, and sustainability.

Also Read: Muthoot Microfin IPO allotment declared. GMP, how to check status online

Conclusion

India is home to a vibrant and diverse startup ecosystem, with a growing number of unicorn startups that are disrupting various sectors and attracting global investors. 

However, most of these unicorns have not gone public yet, due to various reasons, such as regulatory hurdles, high costs, and abundant private capital. 

Some of them are preparing to go public in the near future, driven by market opportunity, valuation, and exit potential. 

Going public can offer various benefits and challenges for the Indian unicorns, and have a positive impact on the Indian economy and society. 

The IPOs of Indian unicorns can unleash their potential and value, and create a new wave of innovation and growth in India.

Also Read: Azad Engineering IPO: GMP, subscription status, should you apply as bidding ends today

Read all IPO-related news here

(The author of this article is the founder and CEO of Alice Blue)

Disclaimer: The views and recommendations above are those of the expert, not of Mint. We advise investors to check with certified experts before making any investment decisions.

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Published: 22 Dec 2023, 10:49 AM IST
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