Mixed Outcomes on Dalal Street: The Startup IPO Dilemma
Despite skepticism surrounding Lenskart’s exorbitant price-to-earnings (PE) ratio of 235x, the narrative of India’s startup IPO landscape has unfolded with unexpected returns. Since 2021, a minimum of 25 contemporary tech startups have ventured into public markets.
Their performances have been decidedly varied, yet this cohort has realized an average appreciation of 42%, featuring four stocks that have multiplied investor returns and eight that have underperformed.
Notably, Lenskart’s first trading day concluded with negligible change after intense pre-listing speculation and fervent social media discussions, highlighting a palpable divide among fund managers regarding evaluation and sustainability.
The influx of new listings shows no signs of abating. Expect Groww, PhysicsWallah, and Pine Labs to make their stock market debuts in the coming days, marking a pivotal era for India’s emergent IPO landscape.
As investors grapple with valuation concerns while tech entrepreneurs and early-stage investors reap substantial gains, one truth stands out: startup IPOs, notwithstanding their inherent volatility, continue to generate profit and redefine market dynamics.
A Journey from Zomato to Lenskart
The saga commenced with Zomato’s highly-publicized debut in 2021—a landmark moment that heralded a steady stream of digital and consumer technology listings. This includes prominent names like Nykaa, Paytm, and Policybazaar, along with new challengers such as Mamaearth, Go Digit, and now Lenskart.
Of the 25 startups listed since January 2021, remarkable successes abound, with four emerging as multibaggers. Leading this cohort is Zomato, boasting an astonishing 303% increase from its IPO price of Rs 76, as reported by Prime Database.
It’s worth noting that Zomato’s valuation faced intense scrutiny back in July 2021, with respected valuation expert Aswath Damodaran asserting that the stock was overvalued at Rs 76.
Fast-forward to the present, and the shares are trading significantly above Rs 300, with some brokerage targets surpassing Rs 400.
Following Zomato is Le Travenues Technology (Ixigo) with 202% returns, while Zaggle and Blackbuck show increases of 122% and 145%, respectively. Other substantial gainers include Nazara Technologies with an impressive 93% and Cartrade Tech at 79%.
Conversely, eight companies are floundering below their initial issue prices, with Paytm下降37%, Ola Electric down 38%, and Tracxn Technologies plummeting by 39%.
Assessing the Valuation Landscape
Lenskart’s IPO, valued at Rs 7,278 crore and oversubscribed 28 times, attracted participation from a plethora of significant domestic mutual funds, including SBI, HDFC, Kotak, and ICICI Prudential, alongside various global institutional investors.
Yet, its stock grappled with a flat debut, reflecting a market division over its steep valuation of 235x its FY25 earnings—a figure that stands out starkly in the context of other startups. Sandip Sabharwal remarked, “The IPO landscape is becoming increasingly opaque, fraught with a dearth of transparency.”
He continued, “Many of these entities appear to record profits solely in the quarter preceding their IPO, which highlights a troubling trend in recent offerings.”
Sabharwal cautioned against the ramifications for secondary markets, highlighting that a significant influx of IPOs alongside promoter sell-offs is maintaining a subdued market environment.
Evidence of this shift is evident, as foreign institutional investors (FIIs) have withdrawn over Rs 2 lakh crore from the secondary market this year, while investing approximately Rs 55,000 crore in the primary sector.
Sandeep C. Patil, partner & Head of Asia at QED Investors, offers a contrasting perspective, stating, The current surge of IPOs in India is generating a blend of skepticism and intrigue, with detractors branding it ‘dumb money’ in anticipation of an eventual market crash.
Yet, focusing solely on short-term fluctuations overlooks the deeper transformation happening within India’s capital markets. He characterized the ongoing evolution as an endeavor towards greater inclusiveness and structural resilience.
Patil highlighted India’s burgeoning global relevance: While emerging markets encounter volatility, India is progressing. The strength of institutional participation is noteworthy, as India increasingly stakes its claim on the global stage.
Notably, the country represented a quarter of worldwide IPO activities in Q1 2025, positioning India as a major market hub.
He framed the situation as fundamentally about domestic capital formation, saying, This entire phenomenon revolves around capital formation within India. Indian entrepreneurs are gravitating toward local markets, exhibiting faith in domestic investors and homegrown pathways to growth.
This democratization allows countless savers to transform into shareholders in India’s prosperity. He posited that the recent IPO wave does not evince a speculative bubble; rather, it reflects a necessary evolution in building the capital foundation for India’s forthcoming decade.
Navigating the Future
“It is true that certain IPOs bear inflated valuations, and instances of initial spikes followed by sharp declines abound. Nonetheless, these occurrences do not signal a breakdown,” Patil conceded. “Such phenomena are intrinsic to the sorting mechanisms of a maturing market.”
The defining test, he articulated, will hinge upon whether companies meet their public obligations, uphold robust governance, and expand their investor base beyond mere listing enthusiasm.
Groww’s IPO, while not priced as aggressively as Lenskart’s, garners attention for its valuation multiple oscillating between 34–44 times FY25 earnings—surpassing traditional brokerage firms like Angel One and Anand Rathi.
With PhysicsWallah presenting a Rs 3,480 crore offering and Pine Labs proposing a Rs 3,809 crore issue, the ongoing challenge will be to gauge market appetite and stamina.
“In this context, initial excitement is less critical than sustained viability,” Patil concluded. “Listings need to become touchstones for ownership, fostering trading liquidity, and valuations that accurately reflect underlying fundamentals.”
At present, the market remains bifurcated: proponents advocate for India bolstering its capital foundation for the next decade, while skeptics highlight a troubling pattern of founders liquidating stakes at exorbitant valuations.
Source link: M.economictimes.com.
