Indian Unicorn Issues

                              Indian Unicorn Issues


India has been in a leading position in technology services for the past two decades—this is old news. But its IT services revenues shot up to $194 billion last year. Until 2015, India was not a big domestic player. There were no major exits that can be classified as a Unicorn success. That changed when, in 2018, Walmart acquired India's first Unicorn Flipkart for a whopping $16 billion. Surprisingly, Walmart found that a small subsidiary of Flipkart, PhonePe was valued recently at $5.5 billion.

This was the beginning of a gold rush in the Indian technology scene. There have been a plethora of investments that are considered Unicorns. India now has more than 90 Unicorns and is moving quickly to cross the 100 mark. Tiger Global, Sequoia and other leading U.S. and global investors are in a tearing race to find companies that can scale at incredible speed. Young founders are dreaming of minting many 100s of next-generation startups, which can become "dream-come-true" type companies.

India became the third top country hosting unicorn companies in 2021, displacing the UK. This is leading to a bunch of unexpected challenges. As global investors pour more capital into these new startups, there have already been a few lawsuits with investors, controversies and negative media stories.

And while India is still producing a lot of engineering graduates, there has been a steady trend, which is not positive. From 2.9 million engineers, it has moved to 2.2 million in 2020. This is worrying as the quality of the engineers is also deteriorating while the salaries are shooting up quickly. Also, larger companies like Infosys, TCS and Wipro are falling much higher resignations. Infosys hit an approximately 25% attrition rate in 2021.

All these issues, like increased salaries, attrition and lawsuits, are creating hurdles while India is minting its new unicorns. Another aspect that may create some issues is the depth of the capital markets. There has been just a handful of IPOs that are M&A of these unicorns. Only time will tell if these valuations are truly reflective of the market potential or just irrational exuberance. Markets will eventually tell the truth.

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