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Saturday,07-June-2025

Business

As capital becomes expensive, startup funding takes a hit

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When capital was free, the best performing companies were capital consumptive. As capital has gotten expensive, these have become the worst performing companies, global private equity fund, Sequoia said in a recent meet with the community of founders.

As interest rates rise, valuations of cash guzzling companies and startups are being hammered and funding is drying up globally, and in India.

VC/start-up investments in India in April 2022 declined by 50 per cent year-on-year to $1.6 billion across 82 deals, according to the IVCA-EY monthly PE/VC roundup.

Vivek Soni, Partner and National Leader Private Equity Services, EY said the US Fed has started tightening monetary policy with a 50 bps interest rate hike and business risk premium/discount rates have gone up globally, which has had a significant negative impact on valuations of listed loss-making but growth-oriented start-ups. This is expected to have a spillover effect on the private capital side as well. Both start-up valuations and deal closures could see some slowdown in the coming few months.

According to the IVCA-EY monthly PE/VC roundup, April 2022 recorded investments worth $5.5 billion across 117 deals, including 16 large deals worth $4 billion. Exits recorded $1.2 billion across 13 deals, including six open market exits worth $483 million and one buyback worth $330 million.

Soni said April 2022 recorded US$5.5 billion in PE/VC investments, 27 per cent lower than April 2021 and 11 per cent higher than March 2022. Growth investments were back at the top after nine months with more than 2x growth y-o-y while monthly start-up investments recorded a 50 per cent y-o-y decline.

“The best performing assets ‘when rate expectations were falling – including technology, biotechnology, and recent IPOs- have been the worst performing assets. Simply put, the world is reassessing how business models fare in a world where capital has a cost and reconsidering how much credit to give companies for profits many years into the future”, Sequoia said.

“We are experiencing the 3rd largest Nasdaq drawdown in 20 years. It’s been an incredibly volatile last 6 months in the tech market. While it’s not quite 2001 or 2008, the Nasdaq is down 28 per cent since last November”, it added.

Sixty one per cent of all software, internet and fintech companies are trading below pre-pandemic 2020 prices. They’ve lost more than two years of stock price appreciation That’s despite many of these companies more than doubling both revenue and profitability.

One third are trading below COVID lows, when uncertainty and fear was peaking. Even more sobering, nearly one-third of these companies not only trade below their pre-pandemic stock prices, but they are now trading below the bottoms reached during March 2020 at the height of the COVID-19 pandemic.

The market is now pricing in lower values for many stocks than in March 2020 at the time of peak uncertainty. The market bounced back quickly from those lows with the help of an unprecedented combination of monetary and fiscal policy. Now with both those tools being withdrawn and moving from tailwinds to headwinds, the market is clearly indicating that the valuation framework over the last two years is no longer relevant with the removal of free money, Sequoia said.

It added that growth at all costs is no longer being rewarded. The era of being rewarded for hypergrowth at any costs is quickly coming to an end. EV/Revenue multiples across software have been cut in half over the last 6 months and now trade below the 10-year average.

Growth-adjusted multiples have fallen even further and are well below the 10-year average and pushing the 10-year lows. With the macro uncertainty around inflation, interest rates, and war, investors are looking for companies that can produce near-term certainty. Capital is becoming more expensive while the macro is becoming less certain, leading to investors de-prioritizing and paying up less for growth, Sequoia said.

The focus is shifting to companies with profitability. The focus on near-term momentum is often shifting toward companies Who can demonstrate current profitability. While the Nasdaq is down, Morgan Stanley’s unprofitable tech index is down 64 per cent. With the cost of capital (both debt and equity) rising, the market is signaling a strong preference for companies who can generate cash today, Sequoia said.

Cheap capital is not coming to the rescue. Unlike prior periods, sources of cheap capital are not coming to save the day. Crossover hedge funds, which have been very active in private investing over the last few years and have been one of the lowest cost sources of capital, are tending to wounds in their public portfolios which have been hit hard, Sequoia said.

Many don’t even have the capacity to invest, as the drawdown in their public portfolios has created an imbalance in their hybrid funds where their private investments (which have not been as dramatically marked down) represent more than the maximum private capacity within their funds, Sequoia said.

Shivam Bajaj, Founder & CEO, Avener Capital said alarmingly for the Startup ecosystem, private equity and venture capital investments declined by 25 per cent-30 per cent M-o-M in April 2022. Additionally, glorified startups including Nykaa, Zomato and Paytm continue to erode investor wealth by trading at approximately less than 50 per cent of their listing prices. With more than 6000 employees laid off in 2022 YTD by Indian Startups, capital providers might prefer delaying their plans to deploy their dry powder in expectations of future turnarounds in the industry. However, on the upside, asset-light business models built upon the pillars of consistent revenue generation, which deliver reasonable margins to investors instead of demanding rigorous burn rates, might potentially draw investor interest.

Siddharth Mehta, Founder & CIO, Bay Capital said the easy money policy of the Federal Reserve following the Global Financial crisis and accelerated in many ways at the onset of the pandemic had led to the excess liquidity getting funnelled into financial assets with increased speculative activity in such assets such as crypto currencies and NFT’s, over the last couple of years.

“India has been an equal beneficiary of this liquidity and now with the Fed being behind the curve in addressing inflation concerns and the extraction of liquidity with increased interest rates, it is definitely going to have a knock on effect on funding for early stage and late stage businesses as well”, Mehta said.

“Our view is that incremental capital will be allocated far better; investors will become far more discerning as they should have been; funding cycles will get more drawn out and diligence will be more robust and there will be far greater focus on profitability paths of these businesses. Its also likely that in some instances there will be consolidation and unfortunately mortality as well. The price damage in the public markets has still not fully cascaded down the stage curve and will happen very rapidly now. While this will have a negative impact in the near term, it is our view that over the long term, this will have positive effects as stronger businesses with robust business models, clear paths to profitability, scale and with clear differentiation will come out to be outsized winners”, he said.

Ravindra Bandhakhavi, Partner & Head-Private Equity, Cyril Amarchand Mangaldas says, “The global economic conditions are definitely impacting the funding environment for startups. There is much more emphasis on a proper diligence and a more robust corporate governance framework. Investors are also able to negotiate better rights as companies and startups are keener to have deep pocketed investors backing them at this point. Investors lastly are much focused on a path to profitability than they were before. Overall the more successful startups will still be able to raise funding while others will suffer potentially creating greater M&A opportunities in this space as well this year.”

National

IRCTC’s Chhatrapati Shivaji Maharaj heritage train tour receives overwhelming response

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New Delhi, June 7: The Indian Railway Catering and Tourism Corporation (IRCTC), a Navratna company under the Ministry of Railways, Government of India, has received an overwhelming response to its newly-launched ‘Chhatrapati Shivaji Maharaj Circuit Train Tour.’

Scheduled to depart from Chhatrapati Shivaji Maharaj Terminus (CSMT), Mumbai, on June 9, the heritage tour is already fully booked. A total of 710 passengers have secured their spots across various classes, with 480 bookings in Economy (Sleeper Class), 190 in Comfort (3AC), and 40 in Superior (2AC).

This six-day train journey has been specially curated to showcase the glorious history and grand legacy of Chhatrapati Shivaji Maharaj.

The tour is the result of a collaborative effort between the Government of Maharashtra, Indian Railways, and IRCTC, aiming to provide travellers with an immersive experience that brings to life the heroic saga of the legendary Maratha ruler.

The train will cover historically significant sites such as Raigad Fort, Shivneri Fort, Pratapgad Fort, Panhala Fort, Lal Mahal, Kasba Ganpati Temple, and Shivsrushti, all closely associated with the key events and life of Chhatrapati Shivaji Maharaj.

The journey begins with the train departing from CSMT and heading toward Mangaon station on the Konkan Railway network, the nearest access point to Raigad Fort.

Raigad is the site of Shivaji Maharaj’s coronation and was his capital. After sightseeing, tourists will travel to Pune for an overnight hotel stay. On the second day, they will visit Lal Mahal, a red palace originally built by Shivaji’s father Shahaji Bhosale in 1630, and later rebuilt in 1984.

Tourists will also see the Kasba Ganpati Temple, believed to have been established by Shivaji’s mother Jijabai, and the historical theme park Shivsrushti, where Shivaji’s life story is presented through 3D visuals and interactive exhibits. Visitors will spend a second night in Pune.

On the third day, the tour continues to Shivneri Fort, Shivaji Maharaj’s birthplace located atop a hill near Junnar and will also visit the Bhimashankar Jyotirlinga Temple, one of the twelve Jyotirlingas in India.

After the visit, tourists return to Pune for overnight rest. On the fourth day, the train will proceed to Satara. From there, travellers will explore Pratapgad Fort, the historic site of the 1659 battle between Shivaji Maharaj and Afzal Khan of the Bijapur Sultanate.

After this visit, the group will leave for Kolhapur.

The final day of the tour begins with the train arriving at Chhatrapati Shahu Maharaj Terminus in Kolhapur.

Following this, there will be a tour of the iconic Panhala Fort, located in the Sahyadri Hills. This fort has deep historical connections with Shivaji Maharaj, who was held captive there for over 500 days before making a dramatic escape.

Known as the ‘Fort of Serpents’ due to its winding structure, Panhala is also famous for the legendary bravery of Baji Prabhu Deshpande, Shivaji’s general, during a crucial battle to retain control of the fort.

The tour package includes train travel, comfortable hotel accommodations, all vegetarian meals, transfers and sightseeing via air-conditioned buses, travel insurance, and the assistance of experienced tour escorts.

IRCTC has assured that all necessary arrangements have been made to ensure the safety and comfort of passengers while providing a culturally enriching and memorable journey.

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National

Eid prayers across J&K pass off peacefully

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Srinagar, June 7: Thousands of devout Muslims gathered across Jammu and Kashmir on Saturday to offer Eid al-Adha prayers. Peaceful congregations were also held in various cities and towns throughout the Union Territory.

Chief Minister Omar Abdullah and former Chief Minister Dr Farooq Abdullah joined the devotees in offering Eid prayers at the Hazratbal shrine on the outskirts of Srinagar city.

Hundreds of Muslims gathered at the shrine’s lawns to offer prayers. Former Chief Minister Mehbooba Mufti also offered Eid prayers at the Hazratbal shrine.

This is the holiest Muslim shrine in J&K as it houses the Holy Relic of the Prophet.

Authorities had made adequate arrangements for security, sanitation, and healthcare at different places for the devotees in Srinagar city and all other cities and towns across J&K.

In Jammu city, the main Eid congregation was held at the Eidgah grounds in the Residency Road area of the city. Hindu and Sikh friends of Muslims were the first to greet them at the end of the Eid prayers in Jammu, Poonch & Rajouri districts.

Large Eid congregations were also held in Budgam, Baramulla, Kupwara, Bandipora, Pulwama, Kulgam, and Shopian districts.

Children wearing new clothes accompanied their fathers to various Eidgahs, and after the prayers, Muslims embraced each other to carry forward the universal message of inclusive brotherhood of Islam.

After the Eid prayers, the ritual of offering animal sacrifices will begin across J&K.

Animal sacrifices are part of Eid al-Adha as these commemorate the greatest sacrifice offered by Prophet Abraham, who, under orders of Allah, decided to sacrifice his son, Ismail. As the blindfolded father tried to move the blade on the son’s throat, a lamb from heaven replaced Ismail under the knife.

When Prophet Abraham unfolded himself, he saw Ismail smiling at a distance when a lamb had substituted him for the sacrifice.

Muslims believe that when Prophet Abraham returned home handholding his son, there was a joyous celebration in the family — Allah had accepted Abraham’s sacrifice and also saved Ismail’s life.

Eid al-Adha is the commemoration of that great event in Islamic history, and each year, the Hajj pilgrimage comes to an end with the pilgrims offering animal sacrifices in Mecca.

The basic spirit behind Eid al-Adha is that the outcome of every event and the destiny of every human being are in the hands of God, with whatever name the faithful choose to remember Him.

It is customary for Muslims to send mutton to their relatives, neighbours, and the poor on this auspicious day so that nobody is left out of the festivities of Eid.

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Business

Stock market exhibits resilience, RBI’s rate cut icing on the cake

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Mumbai, June 7: After starting the week with consolidation, the domestic market exhibited resilience amid concerns over tariff wars and geopolitical escalations, analysts said on Saturday.

Markets consolidated for the third consecutive week but managed to end higher by nearly a per cent, buoyed by favourable domestic cues.

After remaining range-bound for most of the week, benchmark indices surged sharply on Friday and settled near the week’s high, with the Nifty closing at 25,003 and the Sensex at 82,118.99.

“The highlight of the week was the RBI’s policy announcement, which took the market by surprise. The central bank implemented a sharper-than-expected 50 bps repo rate cut and a 100 bps CRR reduction, signalling a strong pro-growth stance. Notably, the policy stance was also shifted from ‘accommodative’ to ‘neutral’ — a move that came sooner than expected,” said Ajit Mishra, SVP, Research, Religare Broking Ltd.

By front-loading its easing measures, the RBI has underscored its commitment to reviving domestic growth amid global uncertainties. While such a bold approach was expected to unfold gradually, this decisive action reinforces confidence in the central bank’s intent to support economic recovery while managing inflation risks.

This week, sectoral performance was broadly positive, with rate-sensitive sectors witnessing strong buying interest. Realty, auto, and banking stocks led the rally, reflecting improved outlooks for credit growth and consumer sentiment. Financials and NBFCs also gained, as lower interest rates are expected to enhance borrowing conditions.

Conversely, IT stocks underperformed due to persistent global uncertainties, particularly in the U.S. and European markets. In the broader markets, both midcap and smallcap indices outperformed the benchmarks, reflecting a risk-on sentiment among investors, with gains ranging between 2.8 per cent and 4 per cent.

According to Vinod Nair, Head of Research, Geojit Investments Ltd, bolstered by supportive macro indicators such as strong Q4 GDP, GST collection and a favourable monsoon, investors focused on domestically oriented and interest-sensitive sectors such as financials, real estate, retail and FMCG, which saw strength, supported by strong institutional inflows.

Profit booking was visible during the week on account of the ongoing global uncertainty. Mid and small caps generally outperformed large caps, driven by better earnings and valuations.

“While China’s rare earth restrictions pose long-term risks and investors await the inflation print in the US, the aggressive RBI rate cut, backed by cooling inflation and a steady GDP outlook, is likely to support investor confidence amidst the ongoing global uncertainties,” Nair noted.

Going forward, market participants will focus on key macroeconomic data for further cues. High-frequency indicators such as CPI inflation will be closely tracked to gauge demand trends and the central bank’s next steps, said experts.

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