Flipkart to Walmart – An Irreversible Loss to Indian Capital Market

Published: Jun 18, 2018

Author: Amit Banka

A lot has been said, discussed and analysed about this mega deal with windfall gains, therefore I would not spend more time discussing it. But can’t help thinking if this deal will get recognized as the success story of Indian Startup Ecosystem or the loss of the expected new age Capital Market Story in India.

Fact of the matter is – No capital market listing for Flipkart in India.

Trigger for this story, however, is the impact that I foresee on the high growth Indian Capital market vis-à-vis a growing Startup Ecosystem. Also, we can not deny that Flipkart has been a flag bearer for the Indian StartUp Ecosystem since a decade.

A broad analysis of the current Indian capital markets and its investment philosophy reveals that the markets are –

1. Driven by a conservative thought process and handful movers and shakers centered around asset backed or high cash flow driven models.
2. That most market participants haven’t spent enough time in detailing new age technology companies. Hence, there is limited understanding of these business models, market penetration strategy (top line at cost of bottom line), valuation matrices, etc.
3. That the general attitude is averse to businesses that have longer gestation with significant investments, especially if they are in red.

In a way, one can argue that the capital markets are not equipped to appraise risk appropriately.

Imagine the renaissance, Flipkart’s listing at the Indian Stock exchanges would have brought for Indian financial markets across the value chain. It would have generated significant interest among Fund managers, Investors, Analysts, other financial market participants and laid a strong foundation (read benchmark) for the others in the similar or related space, directly or indirectly. This might have given a much awaited and required depth to the capital markets with a high market cap entry.

All in all, capital market foray of Flipkart, would have been a long-awaited validation and a beginning of new-age capital market ecosystem - Ready for a big leap.  

It would be a great benchmark for many others to follow. Now, there is no such hope and no quality benchmarking for a long time.

I feel it’s an irreversible loss for the Indian capital markets.

I am not advocating IPO as a better exit option. Normally, strategic exits are more remunerative provided you have a good story on offer. Also, we cannot deny that the challenge is not just listing but it’s to sustain in capital markets which is not equipped to handle this tech startup model. Making analysts and fund managers understand the model who had never been subject to high risk evaluations wouldn’t be easy either. The current system would have required a detailed understanding of e-commerce as a whole, underlying consumer technologies, scientific marketing strategies, Tech enabled consumer engagement struggles, new age business evaluation matrices, AI, etc, that might have taken sometime to generate right traction in Indian markets.

Having said that, this process of building an environment for its sector is nothing new for a market leader and first mover. We have some examples from past, such as the Media and Entertainment Sector, which went through the same process of education of markets and became a benchmark for all in due course.

Looking back at late 90s when the tech and media businesses were running headlines – This marked Version 2.0 for Indian Capital markets. We realised for the first time that it doesn’t always take “plant and machinery” or “brick and mortar” to create value. Only a handful of people also can create a unicorn. Version 2.0 opened up our minds to appreciate and appraise more diverse business models with alternate assets primarily “People as Assets” and gave us the first trillion-dollar company in India.

Two decades later, I am afraid we lost an opportunity to create a Version 3.0.

Posted In: Business Transformation