Where are the opportunities in India’s secondary market surge?

The Indian secondary market is gaining momentum as a critical segment within the country's rapidly evolving financial landscape. "As the primary investment ecosystem matures, the secondary market presents remarkable opportunities," noted Sohil Chand, Founding Partner & Chief Investment Officer at LC Nueva Investment Partners, underscoring the link between the growth of the primary and secondary markets.‍

LC Nueva Investment Partners - a partnership between Singapore’s Lighthouse Canton and Delhi-based Nueva Capital, is capturing India’s venture capital opportunities through its LC Nueva Fund and follow on fund, LC Nueva Momentum Fund. Together they have strategically positioned the new LC Nueva Momentum Fund to capture the growth in India’s secondary market. As more high-value private companies and pre-IPO opportunities emerge, the secondary market is increasingly becoming essential for providing liquidity and unlocking high-return investments.‍

"Every large, well-known company in India, every venture-backed company offers secondary stakes available on the market," Chand explained. "There’s a robust flow from angel investors, employees with ESOPs, and institutional investors seeking exits, making secondaries a highly viable space.”‍

India’s secondary market is evolving as a direct function of the maturing primary market, offering investors a pathway to access established business models while enabling early backers to realize returns. This dynamic has created a liquidity engine that is reshaping the investment landscape by balancing risk and opportunity in India’s vibrant venture ecosystem.‍

In recent years, the market has seen significant growth, with deals involving companies expected to go public in 18 to 24 months, venture capital funds selling their portfolios, and private equity firms raising continuation funds. ‍

According to The Economic Times, secondary market transactions could reach up to $20 billion annually, further cementing its importance in India's financial ecosystem.‍

Numbers from H1 2024 tell the story,‍

Secondary stake sales and buyouts dominated large deals of $50-500 million in the startup space during the first six months of 2024, when total funding fell but late-stage activities started to pick up pace.‍

According to data from investment banking firm DC Advisory India, 62%, or 23, of the 37 deals in the $50-500 million range during the January-June 2024 were secondary transactions or buyouts, with external primary investment rounds making up only 13%.

source: Economic Times

The difference between secondary and pre-IPO markets‍

To understand the secondary market’s significance, it is important to differentiate it from the pre-IPO market. While both markets involve investments in private companies before they are listed, the pre-IPO market typically focuses on primary investments, where investors buy new shares directly from the company ahead of its public listing. In contrast, the secondary market deals with the buying and selling of existing shares, often between early investors, employees, and institutional buyers.‍

This distinction makes the secondary market critical for providing liquidity to those who invested early. It offers investors a chance to enter at a more mature stage, when the company has a proven business model and growth potential, but before it becomes widely known. Secondary market investments enable firms to avoid the volatility of early-stage investments while gaining access to companies that are poised for substantial growth.

Leading companies in India’s secondary market‍

In 2024, notable secondary stake transactions include Temasek and Fidelity's investment in eyewear retailer Lenskart, TPG's acquisition of a stake in logistics startup Shadowfax. ‍

Notable secondary exits included significant transactions like the US$1.6 billion acquisition of Bharat Serums and Vaccines by Mankind Pharma from Advent, and the US$860 million buyout of GeBBS Healthcare Solutions by EQT from ChrysCapital.‍

In another noteworthy deal, early investors in Meesho, such as Prosus and SoftBank, participated in a secondary sale of their stakes. These investors exited partially, reflecting Meesho’s growth and evolving market dynamics. The deal indicates the increasing activity in India's consumer-tech space‍

Indian companies like Swiggy, Zepto, and Tata Technologies have also been at the forefront of the growing secondary market. These firms have seen a surge in secondary sales, providing liquidity to early investors and stabilising their position ahead of their anticipated public offerings. These transactions offer investors the opportunity to enter at relatively attractive valuations, before the IPO, when prices are likely to surge as the company gains public attention.‍

For example, Swiggy, the food delivery giant, has recently seen significant secondary deals, allowing large investors to buy shares from earlier backers. This highlights the immense appeal of India’s high-growth sectors, where secondary transactions are helping to fuel liquidity and provide access to promising opportunities.

The role of global investors and family offices‍

The secondary market in India is no longer limited to domestic investors. Increasingly, global investors are looking to tap into India’s rapidly growing private companies through secondary transactions. Many international funds are now viewing India as a high-potential market for growth, and the secondary market is seen as an ideal way to enter companies at an advantageous stage, before they reach the public market.‍

Chand emphasised, “India’s secondary market is not only a game-changer for domestic investors but also for global capital. International funds are increasingly recognizing India’s potential and using the secondary market as an entry point to diversify and capitalize on the country’s economic growth.”‍

Moreover, India’s Ultra-High Net-Worth Individuals (UHNWI) and High Net-Worth Individuals (HNWI) are becoming more involved in secondary transactions. Traditionally focused on real estate or fixed-income products, these investors are diversifying their portfolios by investing in high-growth sectors through secondary market deals.‍

"The secondary market is an excellent way for investors to de-risk their portfolios," explained Chand. "When you invest in a company through secondary deals, you’re entering at a stage where early-stage risk is behind you, and the business model has been validated."‍

Chand notes that with family offices, their main priority is securing shares at the lowest possible price and prioritising where they can find value. ‍

“Keep in mind the family office is going to typically have a small stake. You’re not looking for active management. They’re generally not looking for a seat at the table with the company, so they don’t care what format their shares take. They would rather have a low price,” he added.‍

While pre-IPO secondary deals have long attracted interest from investors aiming for a slice of the IPO pie, the real value, Chand noted, lies in earlier-stage secondaries. “There’s more upside in secondary deals at early to growth stages, where companies are still capturing significant value. By the time they’re IPO-bound, much of that value has already been realized.”‍

Co-investment opportunities are also explored here. “They’re open to evaluating co-investment deals if the terms are right, providing another angle for value,” Chand shared.‍

Strategic investment approaches in secondary deals‍

As the secondary market gains momentum, funds like the ones run by Chand are adopting a differentiated approach to identify high-value opportunities. Chand explained that the key to success in the secondary market is identifying companies at the right time, particularly those on the verge of significant growth. By targeting businesses poised for major milestones, investors can secure stakes at favorable valuations before they become widely known.‍

“What we’re looking to do in our fund is target companies and sectors in which we are bullish on and cultivate deep relationships. This way we are able to have a stronger understanding of the sector and market dynamics,” Chand stated. With this approach, Chand and his team have their ear to the ground. This enables them to strategically secure deals either through the current portfolio network or in other sectors tangential to the existing portfolio companies. ‍

Chand noted, “The idea is to build a meaningful stake in these companies when valuations are still reasonable. We want to participate in companies that we believe are set to break out, either by having unique competitive advantages or the right leadership in place.”‍

As India's venture ecosystem matures and the next wave of unicorns and decacorns emerges, the critical question for investors is whether true value lies in chasing already-identified winners or discovering tomorrow's market leaders. While capital continues to flood into pre-IPO companies and celebrated startups, the most compelling opportunities may exist in identifying enterprises positioned to drive India's next phase of economic transformation - before they enter the spotlight. "Our emphasis is on backing companies that will drive India's future growth rather than those currently in the spotlight," stated Chand. In a market increasingly driven by momentum and headlines, the ability to identify and access high-potential companies before they become household names may ultimately separate exceptional returns from merely good ones.