What Instacart's IPO Means For India's New-Age Firms

The success of U.S.-based Instacart's initial public offering bodes well for India's new-age companies, both listed and soon-to-be listed.

On debut, the grocery delivery firm's shares opened 40% higher at $42 apiece after selling for $30, the upper limit of its price band. The stock closed at $33.70 a pop in New York on Tuesday, giving the company a valuation of $9.3 billion.

While the stock gave up its gains in the following days, the sentiment for its offering shows the viability of business models that consumer-tech and venture-capital backed companies have been striving for, in India and abroad.

Despite operating in different geographies, Instacart's successful listing will have a positive impact on Indian firms, Kranthi Bathini, director of equity strategy at WealthMills Securities Pvt., said. "It will definitely help boost the current sentiment, which is neutral now. Earlier, it was negative."

Such a listing proves that there is a viable business model for more internet-first delivery companies to be profitable and traded on the exchanges, he said. "These are evolving businesses in India, but the dynamics of these companies, how they are going to control costs going forward are important."

Nandini Mansinghka, the Chief Executive Officer of Mumbai Angels, an angel-stage investment firm, said while local Indian markets differ from the U.S. in terms of size of order value, Indian firms can always use broader success stories which may be relevant locally.

"More and more startups raising money via IPOs shows market maturity," Mansinghka said. "It shows confidence from founders that their business models are strong and eventually result in profitability while it also shows the openness of investors in the public markets to newer and growth stage companies."

The likes of Zomato Ltd., Paytm-owner One97 Communications Ltd., and Nykaa, which does business as FSN E-Commerce Ventures Ltd., have rallied in 2023 after tumbling anywhere between 50% and 60% from their all-time highs.

"We can see some kind of buying interest emerging in them. They're mainly now focusing on margin expansion rather than revenue expansion," Bathini said.

These companies have not tested the waters in Tier 2 and Tier 3 cities. There is a big opportunity on a long-term basis there, according to Bathini.

Firms like Swiggy and Zepto, which are in the waiting lane for an IPO and have U.S.-based backers, also stand to gain from the listing.

"Confidence in unlisted companies will also go up," Bathini said. "Earlier, due to ultra-expansionary monetary policies, liquidity was high, and these companies were burning cash. Now, in the last few quarters, they're all moving towards profitability."

According to Somdutta Singh—an angel investor, a limited partner at several funds and the founder of Assiduus, an e-commerce solutions firm—Instacart could provide valuable insights and lessons for Indian firms.

"While the markets and business dynamics in India may differ from those in the United States, there are several key takeaways," Singh said. "First, Instacart started as a grocery delivery service but has expanded to include other categories like pharmacy, alcohol, and convenience items. Swiggy and Zepto could explore diversifying their service offerings."

Singh told BQ Prime that Instacart leverages data to optimise its operations, personalise recommendations, and improve customer experiences.

"Swiggy and Zepto can invest in data analytics and AI to better understand customer preferences, streamline logistics, and enhance order fulfillment. Instacart's gig economy model for shoppers provides flexibility and scalability and Indian firms can consider similar approaches to manage delivery costs effectively," she said.

Instacart's IPO success, she said, "could validate similar business models and encourage entrepreneurs to explore innovative solutions in the Indian market".