Hundreds of layoffs at several Indian start-ups have sparked fears the bubble is starting to burst for the country’s e-commerce companies, amid claims by analysts that many of them are overvalued.
Restaurant search Web site Zomato, food delivery app TinyOwl and property portal Housing.com are all letting staff go, and experts are warning of echoes of the dot-com boom which crashed spectacularly in 2000.
“The valuation bubble is bursting. The valuations had reached levels where they were ridiculous and could not be justified at any level,” said Arvind Singhal, chairman of management consulting firm Technopak Advisors Pvt Ltd.
Photo: AFP
Wealthy investors boosted by low interest rates have been lining up to lavishly back India’s booming start-ups, with the government hailing the sector as proof of the country’s entrepreneurial spirit.
Indian Prime Minister Narendra Modi views online start-ups as key to providing jobs to aspirational young Indians, seeking to fuel the sector through a government campaign, “Start up India, Stand up India.”
In September he visited Silicon Valley, calling on deep-pocketed investors to turn their attention to India’s thriving start-up ecosystem, with large tech hubs in the cities of Bengaluru, Hyderabad and Mumbai.
Yet despite the billions of US dollars invested in recent years, most of India’s online start-ups are yet to turn profits and investments are largely based on speculative future earnings.
“Investors are not looking objectively at the sector right now. They are just seeing a few success stories and ignoring the failures, just like they did in the dot-com era,” said Paras Adenwala, investment consultant at Capital Portfolio Advisors in Mumbai.
Adenwala is concerned that once the US central bank starts moving on interest rates, as it has long been tipped to do, investors would be less generous with their cash, making the situation worse.
“You would see a lot of these start-ups falling by the wayside once the US Federal Reserve starts raising rates and funding dries up,” he said.
Recent job cuts at TinyOwl Technology Pvt Ltd, Zomato Media Pvt Ltd and Housing.com suggest that not all is well.
TinyOwl co-founder and chief executive Harshvardhan Mandad said the redundancies had been necessary to get the start-up on a more sustainable footing, while an official at Zomato said the restructuring that led to the redundancies was based on a business call.
“I do not think that the pace of growth has suddenly slowed. Is the market correcting? Perhaps it is and I guess it’s about time that happened as well,” said the Zomato official, who asked not to be named.
Grofers, a “hyperlocal” grocery app that allows customers to order goods from corner shops online, last month made two acquisitions in a week, taking over its shuttered competitor Townrush and meal delivery service SpoonJoy.
And earlier this month Mumbai-based CarTrade, a portal for selling used autos, acquired its rival CarWale for an undisclosed sum.
Singhal sees the job cuts as part of an inevitable “evolution” of start-ups, where the early movers lacked well thought-out business models but successors are to learn from their mistakes.
“It would encourage new start-ups with clearer plans,” he said.
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