📰Can India Be the Unicorn Kingdom?

Hello. A unicorn is a start-up with at least a $1 billion valuation, and India has 118 of them, the third-most of any country. Can it overtake the U.S. and China and become number one? We’ll investigate, and then close with Gupshup, a round-up of the most important headlines.

BTW: Do you know how many movies Bollywood, the world’s largest cinema production scene, produces a year? (Answer at bottom)

Markets

Read here for an appendix on the above.

Analysis

India Has the World’s Third Most Unicorns. Can It Be First?

India has the third most unicorns — start-ups with at least a $1 billion valuation — of any country, only behind the U.S. and China. The nation is home to 118 unicorns and is the fourth-largest start-up market by venture capital funding, as per Inc42. With its first unicorn, InMobi—a mobile platform enabling advertisers to send text messages to consumers—reaching a $1 billion valuation in 2021, India's unicorns collectively grew their valuations to $354 billion in just 12 years. Can it keep momentum and overtake the U.S. and China, or is this a balloon waiting to pop?

Growth   India's rise as a unicorn powerhouse was turbocharged by global investor interest, with more than $42 billion in venture capital pouring into startups in 2021—nearly quadrupling the $11.5 billion raised in 2020. The pandemic-driven shift toward digital solutions played a major role, with India producing an average of three to four unicorns per month between 2020 and 2022, a rate rivaling the U.S. and China. In 2021, India added 44 unicorns.

But India's startup ecosystem didn’t just thrive on global trends; it capitalized on its domestic gaps. A glaring lack of financial infrastructure created fertile ground for fintech companies, which exploded in popularity as they offered payment services and digitized India’s financial system. Fintech now dominates the unicorn scene, with 24 of India’s unicorns operating in the sector, followed by e-commerce (23) and SaaS (19). India’s rapid adoption of digital payments, with the government pushing initiatives like UPI (Unified Payments Interface), made fintech startups especially attractive to investors.

These companies have played a role in transforming Bangalore, Hyderabad, and other Indian cities into global tech hubs.

Winter Is Here   The "growth-at-any-cost" model that defined much of India’s startup ecosystem is now under intense scrutiny. 2024 has seen several high-profile unicorns face steep valuation cuts. Many companies that raised billions during the funding boom are now struggling to raise new capital as investors prioritize profitability over rapid growth. Global macroeconomic headwinds—rising interest rates, inflationary pressures, and slowing global growth—have made it harder for startups to maintain sky-high valuations.

By mid-2024, Indian unicorns were no longer popping up with the same regularity. In 2023, India added just 19 new unicorns, down sharply from 44 in 2021. This slowdown coincided with a 50% decline in global venture capital funding into Indian startups, which fell to $21 billion in 2023, down from $42 billion in 2021. For the first time in a decade, funding for Indian startups slowed significantly.

One of the biggest challenges Indian unicorns face in 2024 is navigating the "funding winter." After years of rapid capital inflows, the tightening of monetary policies globally has dried up the pool of easy money that fueled unicorn growth. Indian startups have found it difficult to raise new rounds, and when they do, valuations are often slashed.

There are still bright spots in the Indian startup ecosystem. Fintech, SaaS, and AI-based startups continue to attract capital, albeit at more measured valuations. The fintech sector is still poised for growth, as India's digital payment market is expected to grow to over $10 trillion by 2026. 

Bejul Somaia, a partner at Lightspeed Venture Partners who pioneered the firms growth in India, told Bloomberg the current environment is a “hiccup” but he remains “optimistic” about India’s start-up scene. This week, Lightspeed led a $65 million Series D fundraising round for Qure.AI, a Mumbai-based start-up serving healthcare clients.

Macro

• 50 economists urged government officials to improve how they collect inflation data (BBG). Requests included updating the CPI basket, which has not been revised in a decade, which still weighs food as half the index despite evidence it should be much less now. Economists also requested more frequent household consumption surveys and faster GDP data releases.

• Climate risk models argue extreme weather not being factored enough for bond valuation (BBG). Climate change has major risk for sovereign bond holdings as there can be higher default risk due to adverse weather conditions, especially as India’s agriculture sector remains heavily dependent on its generous monsoon season. S&P responded to comment by saying that credit ratings are “sovereign” not “climate” ratings.

Equities

• The National Stock Exchange plans to IPO on its own exchange, so its valuation has doubled in private markets (BBG). Privately owned by CPPIB, LIC, and ChrysCapital, the NSE’s valuation has increased to $36 billion as it plans to IPO later this year. Its initial plans to IPO in 2016 were derailed by the Securities Exchange Board of India fining the exchange for unfair market practices — it has now cleared the NSE of wrongdoing.

• Suzuki, the Japanese automaker, plans to boost its car dealership network in India by 70%, aiming for about 6,800 locations by fiscal 2030 (Nikkei). Suzuki operates in India through its subsidiary, Maruti Suzuki India, and expects the country's automobile market to grow fivefold by 2047. Meanwhile, Toyota plans to build a new factory in India.

• Hinduja Global Solutions, an IT services company, was accused of $313M of tax evasion (Economic Times). An internal report from the Income Tax Department alleges the firm avoided taxes by merging with a loss-making entity after selling its profitable healthcare business purposefully.

• India’s first AI unicorn, Fractal, seeks to raise $500 million in IPO (BBG), giving it a $3.5 billion valuation. $9 billion has been raised in India’s IPO markets this year thus far. Fractal reported $265 million EBITDA in the year ending March 2024.

• Carlyle Group executive is confident that Indian savers will keep the IPO market afloat (BBG). Amit Jain, who leads Carlyle India Advisors, says the country’s widespread yearly savings plan, where Indian middle-class households automatically put money into a mutual fund, makes the country a global leader in IPO liquidity. You can read more about how Indian savers are boosting their domestic equities market here.

• Stocks with consensus buy ratings fell from 114 in FY23 to 61 today (BBG) in the NSE Nifty 200, the lowest in 10 years. Slower corporate earnings with skyrocketing valuations are deterring investors — the Nifty 200 index has a 12-month forward p/e ratio of 24, a steep increase from 19 a decade ago.

• Morgan Stanley’s Jitania Kandhari says India is her top overweight in her Passport Overseas Equity Portfolio (BBG), which outperformed its benchmark by 13 percent year-to-date. Kandhari is MS Emerging Markets’ head of macroeconomic research and deputy chief investment officer. “The flow data in India from the foreign investors side has been pretty dismal. It’s the domestic flows that have led to this liquidity buying equities in the market,” she told Bloomberg.

• Foreign Institutional Investors own $124 billion in Indian derivatives, the highest ever (BBG), revealing a highly bullish sentiment. Global funds have put $8.5 billion into domestic equities since July 1.

Alts

• Foxconn plans $1B display assembly unit in Tamil Nadu (Economic Times). The upcoming facility will mostly cater to Apple continuing the trend of India gaining manufacturing share of iPhones; other contract manufacturers can also utilize it. iPhone semiconductors and displays are now being assembled in the country.

• Prosus, one of the largest technology investment groups, tells Bloomberg growth is strong in India (BBG). When asked about strong places for investments broadly, CIO Ervin Tan highlighted Its investments in India. Specifically, Meesho, an e-commerce platform, Swiggy, a food delivery app, and Urban Company, an online home service provider, have been promising. Prosus is based in Amsterdam, and owned by South African tech company Naspers.

• Deutsche Bank India poaches Apurva Mazumder from Moelis & Co. in Mumbai to expand its investment banking business (BBG). The German bank has been on a hiring spree in APAC.

• 93 percent of individual traders lost money in Indian derivatives, while high-speed algorithm-driven traders generated $7 billion (SEBI). 

• EQT’s Asia Char Jean Eric Salata sees growing opportunity in Indian private equity (BBG).

Policy

• United States Secretary of State announces support for India to join the UN Security Council in permanent seat (NDTV). The governing body of the United Nations, which holds veto power over all resolutions, has been composed of the United States, Russia, France, the United Kingdom, and China since its founding.

• Prime Minister Modi spoke to world leaders at the UN Summit of the Future (UN). He boasted about India’s lifting 250 million out of poverty, arguing sustainable economic development is possible.

Oh, and India produces 1,500 to 1,700 movies a year, dwarfing Hollywood’s 500 to 700 a year. Bollywood is buoyed by the international Indian diaspora: the top box office film of 2023, Jawan, produced $91 million domestically and $46 million abroad. It was the third highest-grossing film in the world during the weekend of its release.

See you next week.

Disclaimer: This is not financial advice or recommendation for any investment. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.

1 USD = 83.54 Indian Rupee