While the wider global markets have been under pressure this year, thanks to the geo-political situation, global inflation impacting economies and the impact of COVID in certain regions, Indian markets have outperformed relatively. Unlike previous sell-off instances, where Indian markets tracked the global indices and went on an extended free-fall, this time there is support seen at regular intervals in terms of increased buying demand as investors sense an opportunity to invest.
We spoke to Ganeshram Jayaraman, MD, Spark Capital and Skanda Jayaraman, CEO, Qapita Marketplace to decode this outperformance of Indian markets and the underlying reasons including the resurgence of liquidity from domestic sources. Ganeshram exuded broad optimism for Indian markets as many factors are aligning well to give India the tailwinds to grow for the next few years.
With regard to private equity, both Skanda and Ganeshram agreed that it’ll definitely see a trickle-down effect given the demand in public markets. While Skanda reflected caution for the next few quarters given the funding winter, he also added that this dip in the deployment by funds is not because of shortage of funds but because of more prudence and selectivity.
Skanda was optimistic about private markets becoming a mainstream asset class as family offices and HNIs are looking to allocate part of their portfolio to growth startups.
Ganeshram further discussed how and why India is emerging as a strong alternative for foreign investors given the formalization of the economy and the key changes in asset allocation that have taken place from real estate and gold to financial assets. They conclude that while a slowdown is inevitable, but at large there is a positive outlook for the future and scope for a stronger economic recovery in Indi
WITH SKANDA JAYARAMAN, CEO OF QAPITA MARKETPLACE
Liquidity is always available in public markets. How can growth startups attract the same talent that works for Microsoft, Google or Amazon? Can growth companies offer liquidity to their employees and stakeholders?
Skanda underlined the need for liquidity in the era of knowledge economy. Earlier private companies offered liquidity either by going public or through an acquisition. However, startups are now choosing to remain private for a longer period. Given the talent war, it is extremely important to offer liquidity at regular intervals to attract and retain the best talent.
Startups should consider offering liquidity depending on their evolution stage and sector. Unlike earlier days, founders can now consider doing a liquidity program at a Series B stage and beyond through ESOP surrender, share buyback, and secondary sale.
There is a shift in the way employees are looking at their jobs these days. They are increasingly seeking more skin-in-the-game and demanding a share of ownership to feel more associated. Further, once ESOPs are given, they also demand liquidity at regular intervals. All these trends in a way validate the need for structured liquidity programs.
Skanda also highlighted how Qapita is building the infrastructure rails for private markets and offering structured liquidity to startups through its digital marketplace.
“Qapita is seeking to fix this broken private market infrastructure and smoothen the deal process and timelines for liquidity programs to make it easy for various categories of investors to participate in private markets and invest in secondary and buyback opportunities in startups.”
A PERIODIC DIGEST ON ALL THINGS ESOPS
Sharp drop in Employee Liquidity Programs in Q3.
Opportunity for Secondaries?
Q3 2021 was a record quarter with very large companies such as Flipkart, Upgrad and Unacademy announcing large ESOP Buyback programs, meanwhile 2022 saw the volumes shrink by a factor of over 10 as companies are in a cash conservation mode given the funding winter.
While we see a slowdown in company-financed ESOP liquidity programs, a handful companies did announce ESOP pool expansions signaling the intent of granting more ESOPs as an instrument to retain their talent amidst the funding crunch and a push to conserve cashflows.
That said, we see growth companies with strong fundamentals increasingly seeking secondary liquidity route as the need for liquidity is expected to increase given the expectation from employees and stakeholders, thanks to the liquidity rush in 2020 and 202
Unlisted stocks too faced the brunt of the wider market sell-off with a sharp correction to the tune of 20% in Q2. Based on inputs from top brokers of unlisted shares, buyers are on a wait and watch mode given the macro uncertainty. What is the private markets outlook in the coming quarters?
Notwithstanding this sharp correction in the first half of the year, in Q3, of the 55 top traded scrips tracked by over a dozen brokers, about 50% of them demonstrated sharp recovery. Of these, about 4-5 scrips such as Imagine Marketing Private Limited (Boat), Sterlite Power Transmission among others are trading at over 50% premium to price at the end of Q2 implying buyer interest in the market, albeit for specific stock names.
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