Zerodha founder and CEO Nithin Kamath has said heavy selling in high growth tech companies across the globe is like the 'dot-com boom', and that India seems to have weathered the storm as not many tech-based startups are listed here.
"The sharp fall in the stock prices of high growth tech companies across the globe is getting crazy, feels like the dot-com boom. India has weathered the storm mostly because not many such companies are listed & many private ones raised a lot of money last year," tweets Kamath.
Kamath says the listed Indian high growth tech stocks have also fallen quite a bit amid the global downward trend, but since their number is low, there was not a large impact on the rest of the markets. "Indian private markets got lucky with all the money that got diverted from China to India last year," says Kamath.
Notably, a sharp fall in tech stocks on the Nasdaq 100 Index has erased around $1.5 trillion in the past three days. The tech-heavy benchmark fell 505.81 points or 3.98% on May 9 alone, falling over 10% since the Federal Reserve Bank in the US hiked interest rates by 50 basis points. The tech-heavy benchmark has fallen around 25% this year.
According to Kamath, it is impossible for businesses, especially large ones, to quickly adapt to new conditions where expectations have changed from growth at all costs to generating free cash flows to survive the next 2 to 3 years since raising funds might be tougher.
He thinks the issues around ESOPs will also hamper the businesses in the coming months. "The other issue is that ESOPs given over the last 3 yrs will mostly be out of money & employee net worth would have taken large haircuts. This could affect the morale of many, which will make it even harder for those running the business," adds Kamath.
Showing optimism toward the Indian markets, Kamath believes that a lot of money, around $25 billion, is still waiting to enter the Indian private markets. However, foreign institutional investors pulling out their money from public markets is a cause of concern, he adds.
"Globally, India still has a lot of interest given our demographics, population on mobile+internet, & expected GDP growth," says Kamath. Kamath thinks the current market trends show there's there is some correction in employee expectations in India, especially tech, product management, etc. He believes it's "ridiculous that startups have to raise millions of $s to cover employee costs just to be able to launch a minimum viable product".
The problem with such a system, Kamath thinks, is that founders need to oversell the growth prospects and target market size to investors. "This leads to setting goals which aren't achievable and the business not being resilient or sustainable or profitable to weather storms like what we are seeing now globally," he says.
Meanwhile, big tech giants like Apple, Microsoft, Google, and others continue to bleed on global markets. Apple was down 3.32%, while Microsoft plunged 3.69%. Google dropped 2.8% to $2,250.22 on Nasdaq, while Amazon slipped 5.21%. The sell-off continues across the board, with broad-stock benchmark S&P 500 tumbling 3.2% to $3,991.
