For much of the last decade, India’s internet economy was built on one simple belief: scale first, achieve profitability later. Investors were ready to overlook losses as long as companies demonstrated rapid user acquisition, market leadership and a large addressable opportunity.
Private market valuations became the reference point, and public market investors were often willing to pay an additional premium in anticipation of years of future growth.
Recent developments around Zepto’s proposed initial public offering (IPO), which has reportedly been pushed forth, may come to be seen as an inflection point for India’s startup ecosystem.
Irrespective of where or when the company eventually lists, a broader message from public markets is becoming increasingly clear: valuation today is no longer determined by growth or market share alone. Investors are demanding a credible path to profitability.
This marks a significant departure from the previous generation of internet IPOs. Companies such as Zomato, Paytm, Nykaa, PB Fintech, Delhivery and CarTrade made their public market debuts during a period when global liquidity was abundant, interest rates were exceptionally low and private market valuations heavily influenced IPO pricing.
Investors were willing to underwrite significant execution risk because the belief was that scale would inevitably translate to profitability over time.
The environment today looks very different. Higher global interest rates have raised the cost of capital, making investors less willing to pay for earnings that may materialize many years into the future.
More importantly, India’s public market investors now have multiple listed benchmarks across sectors such as food delivery, quick commerce, fintech, beauty, insurance and e-commerce by which they compare business quality, operating leverage and capital efficiency beyond just growth prospects.
As a result, one of the biggest changes is that private market valuations no longer serve as a benchmark for public market pricing. During the previous IPO cycle, many internet companies listed at premiums to their last private valuations despite limited visibility on profitability.
Today, that premium can no longer be taken for granted. Unless businesses demonstrate strong execution, improvement in their unit economics and a credible path to sustainable earnings, the public market is unlikely to reward them with higher valuation multiples than those achieved in private funding rounds.
This also makes it increasingly difficult to benchmark profitable and loss-making platform businesses using similar valuation frameworks. Two companies may operate in the same category, grow at similar rates and command comparable market shares, yet deserve materially different valuations if one is generating operating leverage and free cash flow while the other continues to rely on external capital to fund growth.
Growth at any cost no longer appeals to discerning investors; they would rather reward the quality of growth.
Eternal, which runs Zomato, perhaps best illustrates this transition. The company’s strongest phase of shareholder value creation did not occur immediately after listing, but accelerated only after the management consistently demonstrated operating leverage by improving food delivery margins and showing not just stronger advertising monetization, but also disciplined execution at its quick commerce service, Blinkit, and a visible path towards sustainable profitability.
Execution prevailed over ambition as a consideration.
This reinforces our broader platform valuation thesis. India’s internet sector is approaching an important structural inflection point where profitability—not merely growth—will increasingly become the key valuation metric. Companies capable of converting scale into sustainable earnings, generating free cash flow and allocating capital efficiently are likely to command premium valuations.
Conversely, businesses that pursue growth without a credible path to profitability may trade at a discount, irrespective of their scale or private market valuation.
This should not be interpreted as growth becoming less important to investors. During the early years of building a platform, aggressive investment remains essential to acquire customers and generate network effects in an effort to attain category leadership.
However, once meaningful scale has been achieved, investors would expect evidence that those investments can translate into financial rewards from the business. A growth trajectory, thus, is necessary but no longer sufficient.
For founders planning public listings, this changes the playbook. Rounds of private funding that used to convey what a business is worth have lost importance as would-be subscribers to new issuances of shares look harder and deeper at the business models that are asking for investment.
The first decade of India’s internet economy answered one question: Can these businesses scale? The next decade will answer a far more important one: Can they earn? That distinction may ultimately determine India’s next generation of platform champions.
The author is executive vice president, Elara Capital.