Desi investors make a beeline for Uber, Airbnb, other unicorn IPOs in US

Wealthy clients want a piece of Uber, Pinterest and Airbnb, which are set to make their market debut

Domestic investors have set their eyes on marquee unicorns — a term used for privately held start-ups with valuations of over $1 billion — that are making a beeline to offer their shares through initial public offerings (IPOs). In the coming months, companies like Uber, Airbnb, and WeWork will launch their maiden offerings in the US. While these IPOs are already creating a buzz the world over, India isn’t far behind.

Domestic brokers and wealthy managers say they are being inundated with enquiries from clients wanting to invest in these companies, either in the IPO or post-listing. Notwithstanding the fact that these companies are seen as high-risk investment bets due to a lack of profitability track record, investors still want to nibble at them, say experts.

“When you have a marquee unicorn IPO coming through, it catches the attention of investors who are on the lookout for global investment opportunities. Some of the companies that are coming to the market have changed lifestyles across the world. So it is natural that people want to have a pie of them,” says Prateek Pant, head, products and solutions, Sanctum Wealth Management.

“Companies like Uber have definitely caught the imagination of investors. They have changed the way people look at car ownership, urban commute or food ordering. That’s probably why some investors fancy buying these shares,” adds Rajeev Thakkar, CIO, PPFAS Mutual Funds, an asset manager known for overseas equity investments.

The forthcoming unicorn IPO is likely to be of ride-hailing firm Uber, which is eyeing a valuation in excess of $100 billion, despite having a warning in its offer document that it may never turn profitable. “The traditional valuation metrics such as price-to-earnings ratio or discounted cash flow can’t be applied to these new-age companies,” says Pant.

Market players say some domestic investors have already made healthy returns by investing in US tech stocks and are willing to place more bets despite the red-herring.

The Nasdaq Composite Index, a bellwether for the performance of technology companies, has risen 65 per cent in the past four years and 22 per cent so far in 2019. In comparison, the benchmark Sensex has gone up 35 per cent in the past four years and 7 per cent year to date.

Thakkar says that having exposure to global stocks helps in diversification and managing volatility. “Similar investing opportunities are not available in the domestic markets. Also, domestic factors like general elections don’t impact global stocks. So the overall portfolio volatility comes down,” he says.

Experts, however, say getting IPO allotment in the US is challenging but investors can easily buy shares post-listing under the RBI’s liberalised remittance scheme. Unlike the domestic markets, which have special reservations for retail investors in the IPO, the allotment in the US markets is done at the discretion of investment bankers managing the issue.

ICICI Securities said its client won’t be able to apply in the Uber IPO, but they could buy shares post-listing.

“ICICI Securities, through its partnership with Saxo Bank, allows resident Indian customers to invest and trade in 36 exchanges, including the major ones like the NYSE. Through this platform, resident Indian customers get access to invest in equity and ETFs only. IPOs, MFs and bonds cannot be purchased by Indian customers. However, after the listing of any IPO, customers can invest in the stocks from secondary markets. According to RBI regulations, up to $250,000 per annum can be invested by a customer through this route,” said an ICICI spokesperson.

Wealth management firms say they are looking to tie up with US-based investment bankers and global brokers to facilitate investments in unicorn companies.