Flippin' karts for higher valuation

Just ahead of its public listing, Flipkart has reportedly decided to move its holding company from Singapore to India, where startups often list at higher valuations than those available overseas. Startups operating in India typically switch their domicile of incorporation to friendlier business, investment and tax jurisdictions in their early stages, but find the call of homeland irresistible when they plan to go public. Investor appetite for quality stocks is high and rising in India, which ensures smooth sailing for IPOs. Flipkart, poster child of Indian startups before being taken over by Walmart, should benefit from sentiment that drives Indian market valuations. Domestic investors usually take a shine to businesses that have a strong local play.

Walmart falls into the category of MNCs seeking to list their India business locally to unlock greater value. Global performance tends to overshadow India's fast-growing market, which makes raising capital locally the preferred option. Again, the Indian equity market is more prone to sentiment than its overseas rivals due to shortage of quality paper, which sways the argument. Premium for market dominance is typically high here, which offsets the relatively higher cost of capital. Flipkart ticks these boxes, and is an ideal candidate for a reverse flip from Singapore.

This trend, however welcome, is disconcerting. Lure of investor generosity, fed by market imperfections, is self-limiting for growth. Startups should ideally be global disruptors, not restricted to idiosyncrasies of the Indian market. Even when innovations are Indian - such as digital payments, or 'instant' grocery deliveries - startups go in for a reverse flip. India appears to be customising its innovation only for itself, which stunts its startup ecosystem. Early-stage development finds appreciative investors abroad, while public interest fires up over market control. The pricing mechanism for startups needs a fresh look beyond steps the government has taken to keep startup valuations grounded.