The Indian primary market is witnessing a startup rush, with numerous companies making a beeline for Dalal Street. However, a contrasting and concerning trend has emerged for investors. Many large, recently listed startups are trading below their initial public offering (IPO) price, casting doubts on the long-term value they can deliver to shareholders.
The Underperformers: A List of Disappointment
Data from stock exchanges and Prime Database reveals a sobering picture. Share prices of nearly ten prominent startups, including household names like Swiggy, FirstCry, Paytm, Ola Electric, and Delhivery, are currently languishing below the price at which they were offered to the public. While broader market volatility and corrections have played a part, analysts point to a more fundamental issue.
The primary overhang is the tepid growth reported by these companies, which has failed to match the high expectations built by the street during their listing. "The realisation (on part of investors) that performance is not meeting expectations is resulting in disappointment and value correction," explained Nikunj Doshi of Bay Capital. He further noted that for many startups, acquisitions have been a route to show top-line growth, but the translation of this into a healthier bottom line remains uncertain.
The IPO Wave and the Valuation Reset
Since 2021, more than 30 startups have chosen to list on Indian exchanges. They moved away from large private funding rounds, lured by regulatory easing and attractive valuations in the public markets. This trend continues, with giants like PhonePe, Zepto, Oyo, and Flipkart preparing for their market debut around 2026.
However, the valuation landscape has shifted dramatically. Mehekka Oberoi, a fund manager at IIFL Fintech Fund, stated that public market valuations for tech-led businesses have undergone a meaningful reset from their peak. She cited the example of high-quality SaaS companies, which previously commanded revenue multiples in the mid-teens but now face materially lower market benchmarks. This reflects both multiple compression and a moderation in growth rates compared to earlier, more optimistic projections. Consequently, the next batch of startups may have to list at valuations lower than their last private funding rounds.
The Lock-In Expiry Factor and Future Outlook
It is important to note that most recently listed startups are still trading above their offer price. However, analysts advise caution, suggesting that the true test for these digital companies comes after six months of listing. "These companies are largely funded by VC, PE, and HNI investors whose lock-in expires after six months of listing and the floodgates of supply open," Doshi highlighted. A lock-in expiry removes restrictions on selling shares, allowing these large shareholders to offload their stakes. This sudden increase in supply in the secondary market can be difficult to absorb, often leading to price corrections, as witnessed with some startups post the six-month period.
The scenario presents a critical juncture for India's startup ecosystem. While access to public capital remains strong, the market is signaling a demand for sustainable business models and clear paths to profitability, moving beyond mere top-line expansion. The performance of current listings will set the tone and expectations for the high-profile debuts planned for the coming years.
