The battle for India’s online food retail space is getting hotter and state-owned investors are keen to be immersed in the fray.

The Qatar Investment Authority (QIA) and Singapore’s sovereign wealth fund GIC participated in the US$800 million funding round for Swiggy, valuing the food e-commerce startup at US$5 billion. Swiggy is pitting itself against Zomato, which has received strong backing from Singapore’s Temasek and was valued at US$5.4 billion in a recent funding round.

Zomato is planning to launch an IPO to raise up to US$1 billion. With its voracious appetite for tech startups in Asia, the Singaporean state-owned investor has also backed Indian insurance aggregator PolicyBazaar which is valuing itself at around US$3.5 billion ahead of an IPO planned for September. Dubai’s ICD has also entered the battle in the Indian e-commerce segment, investing US$121 million in meat and fish retailer Freshtohome. Temasek has continued its tech push in 2021, with a concentration on India's edutech segment, which has flourished amid the pandemic and lockdown - in February, it led a US$100 million for Upgrad and secured a minority stake in Lido Learning.

The backing for Swiggy follows a growing trend observed in 2020, notable for the pivot towards the digital economy. SOIs rallied behind the Reliance Group’s e-commerce, mobile telecoms, digital fibre, and telecom mast businesses with more than US$10.9 billion of investment from ADIA, BCI, GIC, Mubadala and PIF. Appetite continues to build as the galloping pace of India’s digital transformation revolutionizes business models, placing connectivity at the heart of operations.

There are challenges facing SOIs in their bid for growth in the Indian digital economy, especially when engaged in venture capital investment in loss-making startups with big ticket valuations. The number and size of funding rounds have yielded massive capital injection, which has in some cases diluted stakes – and if private equity funding rounds or IPOs don’t match expectations, there is a danger that asset values come under attrition.

Indian ride-hailing app Ola has proven an example of the pitfalls of venture capital investment in the Indian tech space. Temasek invested US$225 million in Q3 2018 at a time when Ola was valued at over US$4 billion, but since then its stake as been diluted by later funding rounds, such as when Ola raised US$300 million from Hyundai Motor Group in 2019. Since then, valuation has come under attack as a result of the pandemic and the failure to get its licence renewed in London. Ola’s valuation has gone from a US$6 billion estimate before the pandemic to US$3 billion, according to one estimate last month. Undaunted, Temasek continues to back Ola and is in discussions for an investment of up to US$150 million in electric scooter spin-off Ola Electric as it builds a manufacturing facility in Krishnagiri in Tamil Nadu.

Despite the challenges posed by the rapidly evolving Indian market, there are potential big returns for SOIs. Global SWF believes that as India becomes an ever-more important destination for investment, more SOIs will set up new offices, with the tech capital Bangalore potentially becoming a target for VC as India’s Silicon Valley.

With a high skills base, India will be positioning itself as a Western ally amid rivalries with China, creating a regulatory environment that provides better protections for tech companies than China’s opaque system. By spurring VC, SOIs will be able to participate in the fast-paced evolution of other high growth sectors where Tech can play a role, including infrastructure, education, retail, telecommunications and financial services.

Related funds ADIA BCI GIC ICD Mubadala PIF QIA Temasek