India’s Tech IPO Market Thaws Out, Just a Little

Delhivery’s IPO pop doesn’t mean frigid conditions for tech IPOs in India are over.

By Megha Mandavia from the Wall Street Journal.

After a brutal beginning to 2022, India saw a surprisingly successful listing of a venture-backed startup on the public bourses last week. But investors shouldn’t expect healthy animal spirits roaming back into the Indian IPO market just yet.

Delhivery, which makes its living doing logistics for other e-commerce firms in India and counts SoftBank, Tiger Global and Carlyle as investors, raised about USD 675 million. Shares, which made their debut at 487 Indian rupees each, closed Thursday at 570 rupees. A 17 % jump might seem paltry by the standards of the go-go days of 2020 and 2021, but it looks like a success when markets world-wide remain turbulent with little visibility on when they will hit the bottom.

But tech entrepreneurs shouldn’t be popping the Champagne just yet: A new barrage of IPOs from Indian tech companies, especially ones with high cash burn and a long path to profitability, isn’t in the offing. After being burned by the IPO boom last year that saw the debuts of Zomato, Nykaa, Paytm and PolicyBazaar, investors are skeptical about technology firms and might remain so for another 12 to 18 months.

Instead, a few brave companies with positive cash flow might test the markets in the later part of the year—if the broader market recovers a bit. Many tech unicorns such as Oyo Hotels & Homes, online pharmacy PharmEasy, fintech player MobiKwik and e-commerce firm FirstCry are unlikely to IPO soon.

Hemang Jani, equity strategist at Motilal Oswal Financial Services believes that since most investors haven’t made money from IPOs last year, they remain quite skittish. He thinks when the market stabilizes a bit, India might see some revival in IPOs but the appetite will only be there for companies with reasonable valuations and strong cash flow.

Of the 23 Indian companies that have gone public so far in the second quarter this year, Delhivery is the only tech firm backed by venture capital and private equity, according to data from market intelligence provider Tracxn Technologies. Delhivery’s equity sale was oversubscribed only 1.63 times, largely supported by qualified institutional buyers. Noninstitutional investors, retail individuals and employees placed fewer bids than the quota reserved for them—a sign that retail sentiment, at least, remains deep in the doldrums.