Stock Of The Day: Zomato Tests Correction Zone After Sensex Inclusion

Zomato Ltd. shares tested the so-called 'correction zone' in early trade on Monday, a day after the stock's inclusion in the benchmark BSE Sensex index. The food delivery aggregator replaced JSW Steel Ltd. in the latest rejig, which came into effect from close of business last Friday.

The stock fell as much as 12% to Rs 273 per share on Monday since its life high on Dec. 9 this year. A fall of over 10% from the respective 52-week peak is usually referred to as 'correction', and a decline of 20% will put the stock in a 'bearish' zone.

The counter trades comfortably above the 200-day moving average, but is still below the 21-day exponential moving average. The scrip also currently tests the immediate support of Rs 279 level, which is the 2-standard deviation below the 14-day moving average. A close below this level could trigger further downside for the stock.

Zomato's stock fell as much as 3.23% in early trade on the NSE, compared to the 0.43% advance in the benchmark Nifty 50 index.

The immediate resistance for the shares food delivery aggregator will be Friday's high of Rs 290. Shares have risen by 125.2% on a year-to-date basis. The relative strength index was at 49.72.

Among the 26 analysts tracking the stock, 24 have a 'buy' rating and only two recommend a 'sell'. The average of 12-month analysts' price target implies a potential upside of 9.5%.

Zomato is set to bring in an inflow of $513 million, or approximately Rs 4,356 crore, post its inclusion in the Sensex, according to Nuvama Alternative & Quantitative Research.

Companies are added and excluded from Sensex based on their average six-month float-adjusted market capitalisation. The index serves as both a benchmark and an investable index and is comprised of 30 large, well-established, and financially sound companies across key sectors.

The market capitalisation of Zomato Ltd. has risen by 162% to Rs 2.83 lakh crore this year. At current levels, it stands above Tata Motors Ltd. in market value. Meanwhile, its rival Swiggy Ltd. has seen a stellar run post its debut on the exchanges, surging 30% since its listing last month.

Morgan Stanley is bullish on Blinkit, the quick commerce arm of Zomato, even as it pointed towards the rising competition in the sector. "Superior unit economics, a stronger balance sheet, and strong positioning within consumers should keep Blinkit's market share above 40%," the broking said.