A startup enters the SENSEX, decacorn duopoly, power law in listed startups, conservative IPO pricing goes mainstream

Things we learnt over the last quarter

Zomato has become India’s first venture backed startup to become a part of the BSE Sensex – India’s 30 most liquid and valuable companies. Over the last two years, Zomato has delivered 70% growth, far outpacing the Sensex average of 19% and thus also trades at a premium valuation of 10.6x 1-yr forward revenue, compared to the Sensex average of 5.4x. In our opinion, it’s the beginning of our lead market indices being more representative of the economy – especially tech companies, like those in the US and China.

In another development, Swiggy’s IPO added $13 billion in market cap to the RainGauge Index (RGI) bringing the other half of the food delivery duopoly to the public markets. While it listed at a 55% discount to Zomato, this gap narrowed to 50% within a month as Swiggy’s stock rose 31% post-listing compared to Zomato’s 20% gain during the same period- street’s growing familiarity with the business and the management did play a role in the convergence of market values.

Out of the 11 venture-backed IPOs since the beginning of FY24, 10 of them are trading over their issue price. The median premium of 53% over issue price – is a function of buoyant markets and the fact that more startup managements are following the age-old adage of leaving value on their first brush with public markets.

Meanwhile, the RGI has delivered a 19% return over the past five months (ended November 2024), compared to a 0.2% decline in the Nifty 50. However, the outperformance was not broad-based, with gains concentrated among just half of the index constituents, highlighting selective strength rather than a widespread rally.

How did VC backed startups perform in the last quarter?

RGI tracking India’s start-up ecosystem, has delivered 118% return since 2023, outpacing major indices like NIFTY, NASDAQ, S&P, and the MidCap index.

RGI has outperformed the Indian benchmark indices which turned in the red for the last 3 months ended Nov-24

An average Indian listed startup trades at 1.2x its mid-cap peers – because it grows at 1.8x higher than them

RGI rose 19% in five months ending Nov-24, outperforming Nifty 50 (-0.2%), however performance was driven by only half of the index constituents

Direct correlation between stock performance of the RGI companies and improvement in profitability 

Majority of the companies listed after 2024 are trading at a premium over their issue and listing price

The complete report can be downloaded from: RainGauge — The Rainmaker Group