On November 18 Indian fintech company Paytm completed India’s biggest ever IPO.
But the main beneficiary wasn’t its founder Vijay Shekar Sharma or any of its local investors. Instead Ant Group and Alibaba were the biggest winners – selling shares for $730 million in the now hugely criticised initial public offering.
India’s benchmark index, the Sensex, has risen 20% this year while the Shanghai Composite Index is still pretty much at the same level it started 2021 at – partly as a result of widespread intervention in the Chinese tech sector by Beijing. Indian shares, particularly those in the tech space, have benefited as foreign investors spooked by the uncertainty in China have found a new appetite for the Indian market.
Many of the Chinese investors – stalwarts of Indian tech investment only five years ago – have left the market due to souring relations between Beijing and New Delhi, which has increased domestic suspicions about Chinese capital.
“It’s entirely different from the white-hot market of three to five years ago,” the Global Times quoted a Chinese lawyer specialising in Indian investment as saying.
Of course, some Chinese companies are still investing in India via foreign subsidiaries but their numbers are diminishing – Chinese funding for Indian start-ups from 2019 to 2020 shrank from $3.5 billion to $1.5 billion, according to Yicai.com.
What was interesting about Chinese interest in the Indian internet and tech market was that it was a rare point of positive contact in an often troubled geopolitical relationship. Chinese investors saw something in the Indian start-up landscape in the mid-2010s that they recognised from China a decade earlier, and they piled in with capital that Indian and Western investors were slower to offer.
“There is a change of guard on the investment front,” noted the front page of India’s biggest financial daily, The Economic Times, in 2016.
Alibaba put money into Paytm, the food delivery service Zomato, the online grocer Big Basket and the e-commerce platform Snapdeal.
Its rival Tencent took stakes in online shopping platform Flipkart, edtech giant BYJU’s, ride-hailing firm Ola, meal delivery app Swiggy and the messaging service Hike.
Other companies from China invested too. In 2018 Shunwei Capital – established by Xiaomi founder Lei Jun – bought a $50 million stake in online women’s apparel vendor Meesho and the following year it took stakes in the podcasting company Kuku FM and the Twitter clone Koo.
Some Chinese even moved to India to look for investment opportutunities – an unusual move at a time when it was rare for Chinese nationals to work in India outside the embassy and large infrastructure and engineering companies.
One such arrival was Li Jian, a Hindi-speaking graduate of Peking University and a former Huawei employee. In 2013 he founded an investment consulting firm called Draphant – a combo of ‘dragon’ and ‘elephant’ – to guide Chinese companies wanting to enter the Indian market. Another was Hanson Hu from Morningside Capital, with the Twitter handle: “The Chinese VC guy based in Bangalore”.
Both men had to contend with a sudden lurch in Sino-Indian relations after border clashes between the countries in June 2020. As Covid-19 started to spread, the two men then shut up shop and came home.
Beijing’s crackdown on Chinese tech firms – including the scuppering of Ant Group’s $34 billion IPO in November last year – then brought indirect benefits for India’s start-ups as foreign investors switched focus from China. For every dollar invested in Chinese tech in the quarter to September, $1.50 went into India, claims Asian Venture Capital Journal. In June to July VC investment in India surged from $ 1.6 billion to nearly $8 billion.
The increase has spurred talk of a bubble – something that Paytm’s post-IPO plunge (a 27% drop on the first day of trading) did little to dispel.
Critics slammed the IPO as an overvalued cash-out – an attempt by early investors to exit the non-profitable company with windfall gains. Yet such a description belies the fact that Ant and others still hold sizeable stakes in Paytm, as well as other Indian companies. Newer investment from China might be more difficult, but many of the old ties still remain.
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