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Over the next five years, the number of unicorns in India will grow to over 150 from 63 today driven by strong digital infrastructure, continued business innovation and increasing investor appetite, Investcorp said.
In a new white paper, the Bahrain-based alternative investment management firm said India’s demographic advantage and its rising incomes has positioned the country to be the world’s fastest growing digital economy, set to unlock $1 trillion in value (up from approximately $250 billion in 2020), and accounting for over 25 percent of India’s overall GDP by 2025.
The report said that as investors back tech-enabled businesses, increasing capital allocations into them, the number of unicorns more than doubled from 24 in 2019 to 63 today and is set to more than double in the next few years.
Investor appetite for business models that effectively use technology is also growing. In 2020, technology deals accounted for nearly $11 billion worth of investments (72 percent of total deal volume), more than doubling from about $5 billion in 2016 (59 percent of total deal volume), the report said.
The push to the digital economy was accelerated by the COVID-19 pandemic as locked-down customers moved to purchasing consumption items like food on hyperlocal delivery platforms, to consuming services like education and healthcare through online subscription services.
This surge in digital consumption can be seen in the fact that India’s share of mobile app downloads amounted to 218 billion in 2020, 14 percent of the world’s total, the report said.
The SaaS advantage
Another sector that is a key driver for the development of India’s $1T digital economy, is by serving global markets through Software-as-a-Service (SaaS), where Indian companies are exceptionally agile.
The strong English-speaking talent base, coupled with labour cost arbitrage that exists between India and developed markets such as the US, allows India to cement its position as a delivery market for global players.
In addition, companies providing e-commerce enablement play the crucial role of creating a digital infrastructure where previously none existed. “As e-commerce spends in India burgeon, a need for e-commerce enablement tools, including buyer verification, payments, logistics and purchase financing has emerged,” the report noted.
The potential for growth of the digital economy is also enormous, according to Investcorp. Currently, less than 1 percent of India’s BSE 500 Index is comprised of digital companies compared with 31 percent in the US.
“We believe that significant headroom remains for Indian companies to capture this market – and grow the universe. We anticipate strong investor demand as India’s booming unicorns get ready for public listing,” the report noted.
However, to take advantage of the opportunity, investors will need a combination of deep networks, local presence, technology expertise and multi-cycle/stage investment experience, it added.
(Reporting by Brinda Darasha; editing by Seban Scaria)
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