Goldman Sachs on Stock Exchanges, Startups, and IPOs

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Investors have pumped money into the Indian stock market, and it could reach more than $ 5,000 billion to become the fifth largest in the world within three years, according to Goldman Sachs.

Indian startups have raised $ 10 billion through IPOs so far this year – more money than in the past three years, the investment bank said in a report dated 19. September.

And the pipeline for future public listings is expected to remain strong over the next two years, Goldman analysts said. According to Goldman’s analysis, up to 150 private companies could potentially go public in the next 36 months.

“We estimate that nearly $ 400 billion in market capitalization could be added from new IPOs over the next 2-3 years,” Goldman analysts wrote.

They explained that this could increase India’s overall stock market value from $ 3.5 trillion currently to over $ 5,000 billion by 2024. This is expected to make the South Asian country the fifth largest. in the world in terms of market capitalization, overtaking the UK and the Middle East.

A store promotes the use of the Paytm digital payment system and Zomato food delivery app in Mumbai, India on Saturday, July 17, 2021.

Dhiraj Singh | Bloomberg | Getty Images

Many of India’s biggest tech startups have announced plans to go public, which some investors say will mark the start of a new era for the entire ecosystem.

Zomato food delivery company became the first in a list of important names to go public. Other ongoing projects include payments giant Paytm, ride-sharing start-up Ola, and e-commerce company Flipkart.

“What we’re really reporting here is that as exciting as China has been over the past decade, when you’ve had this new story from China – which is very, very profitable and successful for them. investors – we might see some sort of analog of that start taking place in India, ”Timothy Moe, co-head of Asia macro research at Goldman, told CNBC’s“ Street Signs Asia ”Monday. Moe was one of the report’s co-authors.

India’s digital economy

Looking ahead, we believe Indian stock indices may see greater representation of new economy sectors over the next 2-3 years as large digital IPOs are included in the index.

The number of so-called unicorns – start-ups valued at over $ 1 billion – has increased in India in recent years. This is due to the rapid growth of the internet ecosystem, combined with better availability of private capital and a favorable regulatory environment, Goldman said.

The bank estimated that there are at least 67 private start-ups in India that meet the definition of a unicorn, and 27 of them said they hit the $ 1 billion mark in valuation in 2021. Most of them focus on India’s digital economy.

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While these highly regarded start-ups feature in public markets, Goldman predicted that this could potentially transform Indian capital markets and stock indexes over the next several years.

Changes in the capital market

India’s share of the global stock market is expected to drop from 2.8 percent currently to 3.7 percent over the next five years, according to the investment bank. That’s more than Goldman’s forecast of a 40 basis point increase in India’s share of global GDP over the next five years.

With us, Indian indices like the Nifty could see a greater representation of so-called new economy sectors, because the large floats of Internet start-ups would be included in the index. Currently, indices are dominated by financial stocks and companies in more traditional sectors such as energy and information technology.

The new economy is a term that refers to high growth industries, which rely on the latest technology. They are seen as the engine of economic growth.

“The lack of fast-growing new economy / digital stocks in the index means India’s earnings have lagged the region, while China’s internet-rich index generated the best earnings of the past decade, ”analysts said. .

Based on their calculations, Goldman analysts expect segments such as e-commerce, internet, internet retail and media to have more weight in indices, via consumer sectors. discretionary and communications services. Other sectors such as commodities and software services would likely see their weight decrease, analysts predicted.

“Looking ahead, we believe Indian stock indices may see greater representation of new economy sectors over the next 2-3 years, as large digital IPOs are included in the index.” , Goldman said. “We see that the weight of the new economy sector could drop from the current 5% to 12%.”

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