Practical analysis for investment professionals
23 October 2015

Weekend Reads from India: Will the Start-Ups Deliver?

Posted In: Weekend Reads

Welcome to the inaugural Weekend Reads from India.

Every few weeks, I’ll endeavor to bring you a mix of the most important stories affecting local markets, the national discourse, and global sentiment about investing in India. I’ll also share my perspective on what’s important for global investors with exposure to the Indian market or those considering investing there. And I’ll be sure to fill you in on non-India investment-related news as well.

If you are already an India watcher, you’ll know that expectations have been high ever since Prime Minister Narendra Modi took office in May 2014. But when you are sitting thousands of miles away, it’s not always easy to decipher what is happening on the ground and whether it affects your portfolio. And India, as you well know, is a densely populated land of 1.3 billion with an intricate network of cultures, identities, institutions, and aspirations. I’ll try my best to disentangle the web and offer some fresh insights.

So what has been on my mind lately? Indian start-ups.

Not a day passes by without some discussion about them. Many popular daily newspapers in India run full front-page ads on some “limited period” start-up sale. Sometimes it is difficult to even find where the real front page of the actual news begins. From “cradle to grave,” there is always a special, ready-to-serve offer somewhere. And then there is the “cash-on-delivery” payments that start-ups allow. The priest, the policeman, and the porter — broad and diverse segments of Indian society, with little or no access to credit — are increasingly using the services that start-ups offer. Newspaper columnists try to remind us of the 1990s tech bubble. Experts also point out ballooning start-up valuations and the routine recurrence of venture capital forums at five-star hotels. But who is listening? Consumers aren’t investing, neither are most of India’s existing institutional businesses.

It is the venture capitalists who are fueling the binge. For the first nine months of the year, total venture investment in India was $7.6 billion, which is significantly higher than the $4.6 billion of net cash equity flow into India over the last 12 months. China has been getting a bigger piece of the total venture capital inflow. It is interesting to note that some Chinese investors, like the taxi-hailing service Didi Kuaidi, are now looking to “establish” stakes in Indian start-ups and play a dominant role in the country’s start-up space.

A large liquidity discount and changing growth expectations make start-up valuations unstable. For reference, the valuation for India’s biggest unicorn, or $1-billion-plus start-up, Flipkart, is now reportedly $15.2 billion, a 100% increase in just one year. This translates to about 1.5-times gross merchandise value (GMV) compared to Alibaba’s 1.8-times GMV ratio. It may be early to say which start-ups will endure and ultimately bring investor payoffs. But with sales pressure and price wars, for now the end consumer is coming out a clear winner. And the start-up space will be emulated: Disruptive ideas, cutting edge technology, and entrepreneurial vigor can force significant change, including on established blue chips — as Wal-Mart’s recent travails demonstrate.

India’s northern neighbor, China, a major engine of world growth for three decades, has been in the middle of a market recovery. As investors debate whether China’s latest GDP growth figures, the worst since 2009, is an indicator of more bad news to come or if the forecast for China is rife with green shoots, rising housing starts among them, there are others who perceive in the apparent slowdown a stage in the long, painful process of China’s evolution from middle-income economy to world economic leader. One other interesting data point to follow is China’s reported $1-trillion credit-asset pledged relending expansion program. While China’s central bank has said that the relending program is not a Chinese version of quantitative easing (QE), faltering earnings growth amid central bank policy support in general are among the developed world narratives that do not appear to be going away. What are the connections with the start-up money going around the globe and can dependence on monetary support become problematic ?

Here are some other interesting articles you may find illuminating. Happy reading!

Markets and Start-Ups


Elections around the World


On a Lighter Note

The Prizes and Other Offbeat Readings

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: ©

About the Author(s)
Shreenivas Kunte, CFA, CIPM

Shreenivas Kunte, CFA, CIPM, is director of content at CFA Institute, where he contributes financial market insights about India and the developed world. Previously, he taught at and managed SP Jain’s Trade and Applied Research lab, which he helped found. Kunte also served as a country trading strategist at Citigroup’s Tokyo office. He actively contributes to the development sector in India and is an external research scholar at the Indian Institute of Technology Bombay.

Ethics Statement

Beyond the easier to understand, important codes of conduct, “Ethics” for me is awareness; an endeavor for right thought and action.

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