SoftBank’s Strategic Stake Sale Ahead Of FirstCry’s IPO; A Prudent Move Or Signaling An IPO Bubble Burst? Market Historian Predicts Imminent Burst Of The ‘Everything Bubble’ In 2024 Across Stocks, Crypto, And Housing

SoftBank Vision Fund, the largest shareholder in FirstCry, has recently divested its additional shares even as FirstCry is preparing for an initial public offering (IPO).

The move has created an opportunity for various family offices and individuals to acquire a stake in the company – notable investors participating in this acquisition include the family offices of Indian cricket legend Sachin Tendulkar, Ravi Modi of the ethnic wear brand Manyavar, Infosys co-founder Kris Gopalakrishnan, and the TVS group family.

The total value of the secondary share sale leading up to the planned IPO next year has now surpassed Rs 1,000 crore for FirstCry; as part of this, SoftBank has divested shares worth approximately Rs 600 crore, reducing its ownership stake to below 25%, representing a gradual reduction from its earlier holding of around 29-30% two years ago. 

Reports from December 19 had indicated that FirstCry was expected to file its draft IPO papers in the upcoming week, aiming to raise $500-600 million through the public offering.

Prominent family offices involved in the acquisition include those of Ranjan Pai (Manipal Group), Harsh Mariwala’s Sharrp Ventures (Marico’s investment office), and Hemendra Kothari’s DSP family office, which had already acquired shares in FirstCry back in August.

SoftBank’s total investment in FirstCry amounts to around $400 million, with approximately $300 million already realized; the company initially invested in FirstCry in 2020, and despite the recent divestment, its remaining stake could still be valued at $1 billion if the IPO lists the company at a valuation of $4 billion or more.

While FirstCry has not officially disclosed its IPO valuation, sources suggest it could be in the range of $4 billion, an increase from its previous valuation of just under $3 billion. 

In a secondary share sale, existing investors sell their stakes to new investors, with the capital not contributing to the company’s funds. 

FirstCry’s anticipated $500 million IPO is expected to comprise 35-37% in a primary share sale, with the remainder being secondary, also known as an offer for sale (OFS).

Premji Invest, the family office of Wipro founder Azim Premji, and the Mahindra group are among the existing investors on FirstCry’s cap table. 

FirstCry, headquartered in Pune, specializes in selling products for children and mothers through both online and offline channels, with nearly 1,000 retail stores in India.

Additionally, FirstCry operates a subsidiary, Globalbees, focused on ecommerce roll-up strategies. 

Following Nykaa’s IPO in 2021, FirstCry is poised to become the second Indian vertical ecommerce platform to go public.

The Viewpoint

SoftBank’s recent decision to divest a significant portion of its stake in FirstCry, just ahead of the company’s much-anticipated initial public offering (IPO), raises questions about the motives behind such a strategic move.

While the Japanese conglomerate has been a key player in shaping FirstCry’s trajectory, it appears that a combination of financial strategy and a nuanced reading of the possible IPO climate in India may have driven SoftBank’s decision.

One plausible rationale for SoftBank’s sell-off lies in its capital allocation strategy – by offloading shares in FirstCry at this juncture, SoftBank not only realizes substantial returns on its initial investment but also hedges its bets in a market that has seen fluctuating sentiments. 

With an approximate $300 million already recouped from an initial $400 million investment, SoftBank seems to be executing a disciplined approach, optimizing its returns and rebalancing its portfolio.

The timing of the stake sale also invites contemplation regarding SoftBank’s perception of the current IPO landscape in India. 

The buoyancy in IPO activity, driven by successful offerings and robust investor interest, has been a notable trend. However, the concern of an IPO bubble on the brink of bursting looms large. 

SoftBank’s decision to trim its stake may be indicative of a cautious approach, wherein the conglomerate positions itself to navigate potential market corrections or uncertainties that could affect valuations post-IPO.

As SoftBank reduces its holding in FirstCry to below 25%, it’s crucial to consider whether this move aligns with a broader trend or if it’s specific to FirstCry’s unique circumstances. 

While SoftBank has a track record of strategic exits, the timing stresses a delicate balance between maximizing gains and avoiding potential market volatilities.

What Are Market Experts Saying?

Market Historian Predicts Imminent Burst of the ‘Everything Bubble’ in 2024 Across Stocks, Crypto, and Housing

There’s a dire warning from veteran market watcher Harry Dent, who predicts a massive bubble surrounding stocks, housing, crypto, and various assets, on the brink of a spectacular burst in 2024. 

In an interview, Dent expressed a conviction that the upcoming year will witness the most significant crash in recent memory, attributing the impending catastrophe to excessive government spending in recent years.

Dent, an author and financial historian, is adamant that an “everything bubble” in asset prices is about to burst, and this time, it won’t be a mere correction. 

Drawing parallels to the tumultuous period of 1929 to 1932, he envisions a crash of colossal proportions, warning investors that the aftermath might be severe enough to evoke memories of the Great Depression.

According to Dent, the S&P 500 could plummet by over 80%, housing prices might witness a 50% slash, and cryptocurrencies could nosedive by more than 90%. 

He argues that such substantial declines may prompt authorities to reconsider their approach to budget deficits and artificial inflation of asset prices, emphasizing the gravity of the impending market correction.

The market historian anticipates clearer signs of impending doom by May, urging investors to consider exiting markets for the next six months to a year. 

If his predictions prove accurate, staying out of the market during this period could spare investors from substantial losses, presenting an opportunity to reenter at significantly lower prices and potentially earn substantial returns.

While recent signals from the Federal Reserve have injected optimism into the market, Dent remains skeptical, dismissing the notion of a soft landing and foreseeing economic hardship in the wake of the Fed’s rate hikes. 

Despite previous warnings that did not materialize, Dent remains steadfast in his belief that the current economic conditions are unsustainable and a significant correction is inevitable. 

The Last Bit, SoftBank’s stake sale ahead of FirstCry’s IPO can be viewed as a pragmatic financial move, aligning with portfolio optimization strategies and potentially reflecting a nuanced understanding of the current IPO trends.

Whether SoftBank’s actions signal a broader skepticism about the sustainability of the IPO surge in India remains a topic for conjecture; as the IPO unfolds, market observers will be keenly watching how SoftBank’s calculated maneuvers align with the evolving dynamics of the Indian stock market.

For FirstCry as it works the prelude to its IPO, SoftBank’s calculated sell-off, reducing its stake below 25%, has created a lucrative opportunity for family offices and individuals to enter the fray. 

The acquisition spree by entities like Tendulkar’s family office and the TVS group family stresses the widespread interest in FirstCry’s potential. 

With a planned public listing in the coming year and a targeted fundraising of $500-600 million, FirstCry stands at the cusp of a significant milestone; however, contradictory viewpoints are emerging.

On the one hand, experts are showing positive sentiments on the IPO market in India. In contrast, others are cautious of the overall bubble, overvaluations in India’s context and the larger global perspective of deep correction.