With concerns being raised over sustainability of high valuations commanded by startups, ICICI Bank chief Chanda Kochhar on Wednesday said the “euphoria” will settle down once economic sense takes over.
“I believe finally the values have to come out of or based on the underlying economic flows within these business models. That is where finally the valuations should adjust,” Kochhar said at an event on corporate governance organised by industry lobby group Confederation of Indian Industry (CII).
“I am sure currently it is more of the beginning… it is more euphoria, but gradually the valuations would move towards the underlying economic flows in every business,” the managing director and chief executive of the country’s largest private sector lender said.
Kochhar said the only comforting factor is that investors pouring in money into such startups are “mature” and people who take informed decisions after a detailed analysis.
Indian startups, especially those in the e-commerce space have seen a huge spurt in their valuations, which only rises with every round of funding. Critics fear the companies are burning up the cash on things like discounting and worry about their sustainability.
Flipkart is reported to have raised money from investors at a valuation of over $15 billion (Rs 10,02,30 crore) recently, while its rival Snapdeal has also seen a similar surge in valuations while raising money from dedicated venture capital funds.
Investment banker Nimesh Kampani, who was also present at the event, said that disruptive companies tend to command high valuation in the beginning which gets corrected once the business matures.
He cited the case of Indian IT bellwether Infosys that was commanding a valuation of 85 times its price multiples in the 1990s, which has since come down.
Kochhar, however, said that it is very “heartening” to see innovations flourishing in India and it is representative of the talent, prowess in use of technology and the marketplace that exists for such innovations to succeed.