Franklin Templeton Sees Value in India's Struggling Tech Companies After $20 Billion Loss

Franklin Templeton bought shares of some Indian technology startups after concerns over valuations and higher interest rates caused five high-profile recent market debutants to lose more than $20 billion in market value.

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"We are looking at new tech companies as their valuations have been reset," Anand Radhakrishnan, chief investment officer for equities at Franklin Templeton's India unit, said in an interview. "More importantly, there is data available about their business models."

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Indian internet firms saw a boom in initial public offerings in 2021, thanks to easy-money policies triggered by the pandemic and government efforts to support startups. However, last year these stocks were hit by concerns over fundamentals and governance, which were magnified by the global selloff in tech stocks amid Federal Reserve policy tightening.

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Radhakrishnan observed that some new tech companies have started to exhibit indications that they can generate profits, buoyed by first-mover advantages and large market shares.

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In November, funds managed by Franklin Templeton bought at least 3.3 million shares of e-commerce logistics provider Delhivery Ltd. and more than 2 million shares of PB Fintech Ltd., the operator of online insurance marketplace Policybazaar, according to data compiled by Bloomberg. Five Indian consumer tech firms saw their market value drop by $20 billion.
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After steep losses in the stock prices of One 97 Communications Ltd., parent company of digital payments firm Paytm, online food delivery company Zomato Ltd., and FSN E-Commerce Ventures Pvt, which owns beauty product e-retailer Nykaa, the purchases were made. Paytm suffered the most, with a $12.7 billion decrease in market capitalization.

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Radhakrishnan, who oversees assets worth $7 billion, said that while they didn't participate in any IPOs except for Zomato, they now see much more transparency and discussion with management happening. The firm, which has seen its $1.3 billion India Flexi Cap Fund outperform 86% of its peers over the last three years, recognizes the disruptive nature of some of these businesses and their potential to generate profits over the medium to long term, he said.

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The harsh reality of five famed India IPOs is an $18 billion wipeout. This is a huge loss for investors, and it highlights the risks associated with investing in IPOs. While there have been some successful IPOs in India, the majority of them have been failures. This is a trend that investors need to be aware of before investing in any IPO.
As $14 billion in lockups expire, investors are watching closely to see what Warren Buffett and his son, Howard, will do with their stakes in Indian companies. Buffett has been investing in India for years, and his son has been involved in several high-profile startups there. With the lockups expiring, they will be free to sell their shares, which could have a significant impact on the Indian stock market.

The IPO pipeline in India is expected to be active in 2023, with a number of smaller deals expected to come to market. This is according to a new report from EY, which notes that the country's IPO market has been relatively quiet in recent years. EY expects that the upcoming IPOs will be driven by a number of factors, including strong economic growth, an increase in the number of listed companies, and a favorable regulatory environment. The report also notes that the Indian IPO market is likely to benefit from the continued listing of Chinese companies on international exchanges.