Last Friday, Morgan Stanley Institutional Fund Trust, a minority investor in India’s largest e-commerce company, Flipkart, devalued its holdings in the firm by 27%, bringing the enterprise value to around $11 billion, against the company’s own estimate of $15 billion.
A devaluation of this scale would have been a good reason to hit the panic button for any company, but not in the case of Flipkart. The e-commerce giant is not listed on any stock exchange around the world, though rumours of its plans to do so have been floating around for almost two years now.
Experts told HT that the devaluation is more in tune with a change in outlook globally, and calls for greater focus on the businesses’ intrinsic value rather than getting carried away by investor valuations.
“I have lived through several cycles of excitement and panic, and realised that ups and downs are natural in startups. The current sensitivity is due to liquidity concerns. It is also partly driven by the pessimism prevalent in global markets. Thus, there’s a possibility of 20-30% correction across the board,” said Vani Kola, MD, of Kalaari Capital.
Along with Flipkart, Morgan Stanley also slashed its stake in data storage company Dropbox and data analytics company Palantir Technologies in the US.
“We are attaching too much significance to the mark down by Morgan Stanley now, and earlier Fidelity. They need to fairly reflect their value and present a NAV (net asset value) of their fund, so they use their own valuation methods. This does not reflect the market value as no transaction is taking place at that price,” said K Ganesh, founder of GrowthStory. “This reflects the sentiments of “bear “ phase, but nothing more.”
“This is not so much a Flipkart-driven devaluation as much as part of a broader global trend. One shouldn’t read too much into it,” said Sandeep Ladda, national leader of technology and e-commerce at PwC India.
Investors such as Morgan Stanely, which have a larger group of public investors to answer to, and therefore have to take a more realistic view of their investment values, analysts said.
“There have been steep de-valuations of heavily-funded businesses around the world due to drying up of future funding as well as bleak prospects of IPOs. Any prudent investor with a public face like Morgan Stanley has a legal responsibility to offer prudent guidance,” said Mahesh Murthy, venture capitalist and co-founder of Seedfund.