Five years after the 2021 IPO boom, Indian tech companies are shifting focus from rapid revenue growth to durable profitability. Investors are now questioning the high valuations of these firms as core operating margins remain under pressure, often relying on non-operating income to boost bottom lines.
Half a decade after the wave of initial public offerings (IPOs) from India’s new-age technology firms, the market is re-evaluating these businesses. The focus has moved away from top-line revenue growth toward genuine operating profitability. While some companies in this 2021 cohort have successfully expanded their market share, the sustainability of their business models has become a point of contention for investors.
Valuation Gap Between New and Old
The most significant concern for investors is the valuation gap between these tech-heavy companies and traditional manufacturing or infrastructure giants. The combined market capitalization of this new-age group now exceeds ₹6.25 lakh crore. However, their collective net profit for the financial year 2026 stands at just ₹2,400 crore. This means investors are paying roughly ₹260 for every rupee of profit generated by these companies. By contrast, traditional industry leaders like Larsen & Toubro trade at approximately ₹28 for every rupee earned, highlighting the premium at which the market still values these tech firms despite their lower profitability.
Understanding Quality of Earnings
Beyond valuation, the quality of reported earnings is a growing concern. Many of these companies have finally turned profitable, but a deep look into their financial statements reveals that 'other income' often plays a major role. Other income is money earned from sources outside the core business, such as interest from bank deposits, treasury gains, or currency exchange movements. For instance, in the 2026 financial year, Zomato reported a net profit of ₹366 crore. However, this figure included ₹1,396 crore in 'other income.' This raises questions about how much of the bottom line is coming from the actual delivery business versus external financial activities. With adjusted core profit margins (EBITDA) still thin at 2.2 percent, investors are looking for clearer evidence of operating strength.
Performance Divergence
The market’s reaction to these firms has been varied. Companies that have demonstrated consistent market share growth and a clearer path to margin expansion, such as Zomato, Nazara Technologies, and RateGain Travel Technologies, have generally outperformed broader market benchmarks like the Nifty 50 TRI. On the other hand, firms like One97 Communications (Paytm) and CE Info Systems have faced significant challenges. One97 Communications, in particular, saw a massive erosion in market value following high volatility and regulatory hurdles, which severely impacted investor confidence.
What Investors Should Monitor
The grace period for these companies, where revenue growth was the only metric that mattered, is ending. As regulatory scrutiny increases and competition remains high, the next phase of growth will depend on transforming massive scale into reliable, cash-generative operations. Investors should track how much of a company's future profit comes from its core business activities rather than one-time gains or financial investments. The ability of these firms to improve their operating margins and manage costs without relying on non-operating income will likely determine their long-term value in the market.