“Over the last five years, private equity investing in India has evolved across parameters including transparency, liquidity, price discovery and exit visibility. This bodes well for the pre-IPO segment,” Jaisinh Suchak, managing director- alternative investment funds at JM Financial Asset Management, told mint in an interview. “This will be our flagship pre-IPO fund.”
The firm’s announcement comes at a time when several startups in India’s ecosystem are maturing to the point that they can tap the public markets. Last year, several new age tech companies such as Groww, Pine Labs, Aequs and Meesho went public.
This year has already seen two more well-known firms go public—Amagi Labs and Fractal Analytics—with more such as Razorpay, PhonePe, Leadsquared and Whatfix expected to tap the equity capital markets.
AIFs such as Think Investments, SBI’s Optimal Equity Fund and Emergent Fund, Amansa Investments, Malabar India Fund, 360 One Special Opportunities Fund, and Kotak Iconic Fund have all been active over the last one year in both pre-IPO placement and pre-IPO rounds. For example, Raamdeo Agrawal and Motilal Oswal, the founders of Motilal Oswal Financial Services, personally invested $100 million in IPO-bound quick commerce major Zepto in May last year. Then in August, MOSFL invested ₹400 (around $50 million) crore into the unicorn startup.
The pre-IPO fund has a greenshoe option as well, however, the firm declined to comment on the size.
Through the course of the fund’s lifecycle, it will invest in companies that are expected to list within 18 months, including anchor book opportunities, and the fund will not invest more than 10% of the overall fund size in a single investment, said Suchak.
The asset management company plans to create a portfolio of 18-20 companies through the pre-IPO fund.
While the fund is sector-agnostic, it will look broadly to invest in consumer, technology, healthcare, financial services and industrials with a focus on aerospace and defense firms. “These sectors have been the bedrock for growth in India and that’s where we would focus our participation,” said Suchak.
Defense has become a hot sector in the last couple of months. Venture capital interest is increasingly moving towards defense, even as startups move from being pureplay hardware companies to adding software as a business vertical.
Aequs, a precision contract manufacturing company that specializes in both aerospace and consumer goods is seen as proof that India can build vertical-specific businesses with high margins. The company listed in December last year.
“On the industrial side, anyone engaging with large players has a very long runway and visibility in terms of growth and demand,” Suchak said. “These kinds of companies are interesting to investors because it’s a structurally visible growth opportunity.”
In technology investments, JM Financial Asset Management is not looking for any sub-segments or sectors, but rather those that have a sustainable competitive advantage. Given this, Suchak said it will be more careful with these investments because the disruption risk is high and it is a sector that they would be “very closely” evaluating before making an investment.
Vishal Kampani, vice-chairman and managing director said the firm’s first pre-IPO fund comes “at a time when private markets in India are demonstrating structural depth and maturity”.
“Rising domestic participation, increased investor sophistication, and a supportive regulatory framework continue to fuel this momentum,” Kampani said.
Valuations: Reset or Rationality
As more companies line up for IPOs, pricing discipline is becoming harder to ignore. In recent times, the valuations of Indian firms entering the market public markets have been seen as high or overvalued. This year saw both Amagi and Fractal reduce their overall IPO issue size.
In the case of Amagi, the company attributed it to a steady pathway to profitability, Fractal’s Srikanth Velamakanni said the move had more to do with investor skepticism around artificial intelligence.
Suchak said that over the past year, valuations had become more rational and reasonable.
“I think it’s a good time for any fund or investor to evaluate investment opportunities in the markets because there is a healthier discussion and a more level playing field in terms of getting the right or balanced valuation at this point in time,” he said.
