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Mohandas Pai on Zomato IPO's success, China's clampdown on tech firms, and more...

More companies should raise public money and look to grow fast at this stage, said TV Mohandas Pai, the chairman of Aarin Capital Partners

July 30, 2021 / 07:38 AM IST
TV Mohandas Pai

TV Mohandas Pai

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There appears to be a distinct sense of FOMO wafting through the Indian venture capital space, even as new digital business models bloom like jackfruits in tropical summer.

The fear of missing out is evident, when you see venture capital investments in India total up to $8 billion in the June quarter alone, according to a KPMG report. The Indian financial markets are enjoying the tailwinds too. In the first six months of this year, as many as 22 companies raised over Rs 26,000 crore via primary floats. Then came Zomato’s remarkable listing. Millennials are trading in droves, thanks to the pandemic induced work-from-home environment. Indian investors opened a record 1.42 crore demat accounts in 2020-21, nearly three times from the previous year.

According to figures furnished by the Ministry of Commerce & Industry, FDI into the country grew to nearly $82 billion in 2020-21, compared to $74 billion in the previous fiscal. India’s consumer digital economy, pegged at around $90 billion, is expected to grow to $800 billion by 2030, according to consulting firm RedSeer.

It’s in this buoyant context that Moneycontrol spoke to TV Mohandas Pai, chairman of Aarin Capital Partners and former Infosys board member. Excerpts from the interview:

Q. The pandemic had plunged the world into a sustained phase of health crisis. But for several of the giant corporates worldwide and also for Indian tech startups, it has been a period of high velocity growth.


A. India is now perfectly set for a massive surge in digital economy growth. Digital transactions are witnessing a 3-4x growth since the advent of the pandemic and the markets are robust, urging many companies to go public. The market has welcomed the Zomato IPO in a big way and there are more than a dozen companies waiting in line to get listed.

Overseas capital has been flowing into India, there is plenty of liquidity, interest rates are easing and digital infrastructure is in place. Zomato did a good job of the IPO. People may say it is highly valued, but I see it as the start of a new range of big companies which will grow fast and access capital. Markets have welcomed it, as it has created a new asset class focused on digital growth. Many more companies have reached the desired size and IPO looks feasible and necessary for them to raise money. I feel more companies should raise public money and look to grow fast at this stage.

Q. Did you expect this to happen? I mean when the pandemic hit home, it was all about survival. But the markets are flourishing now and the digital economy is booming.

A. I knew this was going to happen, but not this soon. It has happened 1-2 years sooner than what I had expected. Corporate India has registered record quarterly profits from September onwards, helped along by cost cutting. The Central government has helped by reducing corporate taxes. There is massive corporate expansion being planned and internal accruals have risen. The commodity cycle has changed and prices went up. Real estate is slowly making a comeback due to lower interest. People are buoyant and digital companies are taking advantage of it and I can see 5-6 more IPOs happening by December.

Q. The millennials seem to be trading in larger numbers than ever before. They have clearly taken note of the buoyancy.

A. Overall, the attitudes have changed. Accelerated digital disruption has changed consumer behavior. Discount broking has become mainstream today and plenty of retail trade is happening, probably at 3x levels since the pandemic. However, the larger impact is still caused by traditional investors and big funds. The surge is driven by liquidity due to lower interest rates, more overseas money and higher corporate profitability.

Most importantly, the US tech market has boomed and the world is surplus in capital. (Just three of the US tech giants - Apple, Google and Microsoft -- reported combined profits of more than $50 billion in the April-June quarter). The central banks across the world are flush with stimulus funds. Even if some portion of that flows into India, we will see an accelerated growth. All of this boom is due to the digital disruption.

Q. In which tech verticals do you expect to see the most growth?

A. E-commerce, e-FMCG, fintech, payments, e-health. All of them are seeing great growth. As I said, the consumer behavior has changed digitally. It’s a digital transformation that we are seeing.

Q. And India seems to have latched on quite adeptly to these changes.

A. The Prime Minister’s Digital India vision laid the platform, five years ago. It all started with opening of bank accounts, domestic manufacturing, UPI being rolled out and other digital initiatives. Now the stage is perfectly set up for digital companies to do their IPOs. Don’t forget India has 700 million people with access to the internet.

Q. How do you think this growth will take shape further?

A. India today has 55,000 startups, among them are 58 unicorns. Today the value of these startups together is around $350 billion. The country produces 5,000 new startups each year and that rate will grow further in the coming years. By 2025, we will have 100,000 startups and 150 unicorns with a combined market value of $1 trillion.

Q. China has clamped down on its tech ecosystem. That trend started with Alibaba, then Didi and now the edutech firms have been asked to go the non-profit route. This may have a positive effect on how India is perceived. US-listed Chinese companies have seen a combined fall of $800 billion in their market capitalisation ever since China introduced new regulations.

A. The Communist Party of China has realized that their tech entrepreneurs are wielding too much power. So, it wants to bring back the Communist fervor. They don’t want to risk more foreign capital.

The fact is, the Chinese middle and lower classes are paying a high price. Residential property rates have gone up but their wages haven’t.

India will benefit from this Chinese crackdown of tech startups, as people may become fearful of investing in China. Many are saying we need to move out of there and look at India.

Q. Have to ask you about the high valuations of tech startups.

A. These discussions will always be around. Look, it’s up to the investors. If an investor or buyer wants to buy a stock or invest in the open market at a certain price, that’s up to him. The market will go through the various phases. Sometimes valuation goes ahead of value creation and sometimes it happens the other way around. In digital world, shift is rapid. These are cyclical.

The key is the growth of these firms. Are they going to grow faster than the economy? The answer is yes. The companies should just look to create a high valuation egged on by the surge of capital, as the economy is transforming rapidly and becoming digital.

Q. There seems to be a distinct electric vehicle revolution taking place in India.

A. Ola, Ather, Hero and Bajaj are all doing some great work in this regard. In just two years, India will be a very large manufacturer of electric two-wheelers. India has got everything going for it in this regard, and we are going to accelerate dramatically.

Q. Your view of cryptocurrency. Not betting big?

A. One has to distinguish between cryptocurrency and blockchain, which is the underlying technology. Digital currency is not going to succeed as a currency, as no sovereign power is going to give up the power of printing currency. Many countries are going to use digital currencies for national banks. But many more countries are going to rely on blockchain technology, which is the backbone for bitcoin, ethereum etc and that’s going to accelerate. The underlying blockchain technology will do well as it’s the bedrock that has multiple uses.

Q. Do you see the economy, overall, recovering faster?

A. Truck movements have picked up. Supply chain is back in place. If there is a third wave, we could be hit. But if vaccinations go up as expected, then we will be fine. Digital transformation and liquidity are playing huge, positive roles in our economy. GDP is going to grow this year and India could still become a $4.5 trillion economy in the next 3-4 years.

Q. Did you have any conversation with the government of late, with regard to IT and startups?

A. The government has little impact on IT and digital. The best thing any government can do is not to interfere. But they have helped us by banning many of those Chinese apps.

The Chinese apps were occupying 60 percent of our digital territory. We were foolish to welcome them with red carpet for no reason. They are a very different lot, not comparable to the West.
Darlington Jose Hector is a Senior Journalist
first published: Jul 29, 2021 12:27 pm
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