Private foreign investors may want to exit internet stocks: Kotak

Although IPOs have slowed over the past 18 months, the pace of exits has remained high in secondary markets over the past few months.

Internet stocks may be in for more pain, as many pre-IPO investors look to sell shares.

As of March 2023, private equity firms and billionaires held nearly $7 billion in listed Indian internet companies, according to data compiled by Kotak Institutional Equities. If it weren’t for the market volatility, the amount would be smaller, Kotak believes.

“In our view, weak market conditions coupled with significant declines in some of these companies are likely to reduce the rate of such exits,” the report said.

Foreign direct investment inflows to India have grown over the past few years and so have outflows. Net FDI outflows from foreign businesses stood at $14 billion in H1FY23 compared to $29 billion in FY22 and $18 billion in FY21, according to a report by Kotak Institutional Equities.

The big deals on the block in the past few months are proof of this. Alibaba sold stake to One97 Communications, Invesco to Zee Entertainment Enterprises, Sojitz Corp to Motherson Sumi, Kravis Ventures to FSN E-Commerce Ventures and many others. Some were partial stake divestments and others were complete exits.

How has the composition of FDI changed?

FDI inflows have ranged from telecommunications, finance and retail services to computing and manufacturing. FDI inflows that stood at $9.6 billion in the manufacturing sector in 2019 have increased to $16.3 billion in 2022. In the computer services sector, it increased from $3.7 billion to $9 billion during the same period.

“We expect continued growth in investment in manufacturing driven by the diversification of global supply chains, improving India’s competitiveness with China and significant opportunities in India’s energy transition,” Kotak analysts believe.

Meanwhile, the pace of PE investment has shifted slightly from retail to fintech and edtech over FY19-23. However, the pace has slowed over the past year.

“We suspect that many investors may want to exit some of these investments, if they can get the prices they want in the public markets,” they said.

Disclaimer: Opinions and investment tips expressed by Moneycontrol experts are their own and not those of the website or its management. Moneycontrol advises users to check with certified professionals before making any investment decisions

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