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Tiger Global’s India returns ‘way below average’ but firm remains bullish, says Scott Shleifer

Tiger Global believes India is likely to produce the highest equity returns globally in the future, its partner Scott Shleifer said on an investor call Tuesday, even as he admitted the investor giant has made way more money in China and the U.S.

“We think it will be the best place to invest,” said Shleifer of India. “We were able to purchase 16 or 17% of Flipkart for $8 million in 2010,” he said of the investment in the e-commerce giant, which is currently valued at over $36 billion. “We were able to purchase 10% of Inframarket for $8 million. We purchased a third of Upstox for $50 million.”

Tiger Global is one of the most prolific investors in India and is a backer of over a third of all unicorn startups in the country. The New York-headquartered firm, which counts India among its top three markets globally, has deployed over $6.5 billion in India since inception, TechCrunch reported last year.

India has attracted over $75 billion in investment from tech giants Google, Meta, Amazon and investors such as Sequoia, Tiger Global, Accel and Lightspeed over the past decade. But the country’s burgeoning startup ecosystem has seen very few exits and many consumer internet startups that listed in the past two years are trading significantly below their listing prices.

Shleifer acknowledged that returns on India have not been anything to write home about so far.

“Returns on capital in India have sucked historically. If you look at market leading internet companies whether it is Google, Facebook, Alibaba or Tencent, revenue got bigger than cost more than a decade ago. You had a great legacy of last 17-18 years of materially profitable internet companies. So returns on equity in the internet got really high and the returns for investors have been really high. But that did not happen in India,” he said on the call, which was also attended by Alpha Wave Global co-founder and partner Navroz Udwadia and saw participation from about 200 entrepreneurs, investors and bankers.

Until the past two or three years, India had about zero profitable internet startup even as banks and firms in other industries flourished, said Shleifer. “As a result, returns on capital for investors like us have been below average … way below. Our returns in India is something like 20% gross since inception. That compares to mid-30s in the U.S. on the private side, and low 50s in China. But that’s the past,” he said.

Shleifer asserted that the low returns in India is nobody’s fault, adding that the $3 trillion GDP of the country itself is small. In recent years, he said, “we have seen incremental profit margins on market leaders be fabulous. So this big risk that you would have a great country that would gain share in GDP, but there wouldn’t just be excess profit pools that could have a sustainable competitive advantage, we think the odd of that fallen off a cliff.”

He argued that the historical low returns in India allowed the country entered the downturn better position than the U.S. “You did not have much excess capital in India as there were in few other places.”

Slides from Tiger Global’s presentation:

This is a developing story. More to follow.

source: TechCrunch