India's IPO Market Soars, Peak XV Optimistic Amid Global Tensions

Key Takeaway

• India emerges as the second-largest IPO market globally, with a 48% increase in companies going public in the last year.
• Peak XV Partners highlights India's potential in fintech, consumer sectors, and deep tech, managing $9 billion across 400 companies.
• Despite diversification due to US-China tensions, Peak XV sees China as vital for long-term strategy while acknowledging India's benefits from "China Plus One" strategy.

India's IPO Market Flourishes

India has been recognized as offering a "very favorable" environment for companies looking to launch initial public offerings (IPOs), according to Shailendra Singh, managing director at Peak XV Partners, formerly Sequoia Capital India & Southeast Asia. Singh praised the regulatory framework established by the Securities and Exchange Board of India, the Reserve Bank of India, and other regulatory bodies for creating a conducive atmosphere for young companies to go public. The country witnessed a significant increase in IPOs last year, with 220 companies going public, marking a 48% rise from 2022 and positioning India as the second-largest IPO market globally, as reported by EY. This growth is attributed to optimistic investor sentiment, a robust economy, and expectations of lower inflation and rate cuts.

Peak XV Partners' Investment Focus

Peak XV Partners, managing $9 billion in assets and having invested in over 400 companies across various sectors, highlights India's potential in cross-border software, fintech, and consumer sectors. Singh pointed out the fertile ground India offers for fintech investments, thanks to innovations like Aadhaar, UPI, and the India stack. The firm also sees significant opportunities in consumer brands, ed-tech, and healthcare, driven by the societal value placed on education as a pathway to upward social mobility. Emerging areas such as deep tech and semiconductors are also on the firm's radar, although these are still in the early stages of investment.

Diversification and Long-Term Strategy

Despite the current trend of diversifying investments away from China due to escalating tensions with the U.S., Peak XV Partners views China as a crucial market in the long term. The firm acknowledges the benefits that countries like India and Southeast Asia are experiencing from the "China Plus One" strategy but emphasizes the importance of considering how to engage with China over the long haul. This perspective is shared amidst a backdrop where companies are seeking alternatives to Chinese manufacturing and supply chains, with India and Southeast Asian nations emerging as beneficiaries.

Management Quotes

• Shailendra Singh, Managing Director at Peak XV Partners:

  "My general view is, especially in Indian public markets, the regulatory framework, what Securities and Exchange Board of India does, what Reserve Bank of India does, what other regulators do is actually really good... It’s both safe and dynamic in India for a young company to be able to go public."
  "The Indian capital markets have evolved quite a bit. The markets have deepened in terms of liquidity. There’s lots of interest in tech companies coming up because ... we are beginning to see a large number of companies with triple-digit million revenues and profits."
  "Founders are realizing that the U.S. markets may not always understand Indian companies."
  "Our second-[biggest] sector tends to be fintech. We are a very strong fintech investor. I think India is one of the world’s most fertile markets because of Aadhaar, UPI and the India stack."
  "We will see plenty of good education companies being built in the long-term."