Shares of new-age companies that have gone public so far this year have tumbled from their peaks as analysts and market veterans continue to raise concerns about market valuations.
Shares of CarTrade Tech Ltd. to FSN E-Commerce Ventures Ltd., operator of Nykaa, have retreated from their post-IPO highs by 10-30%. And Paytm's parent One97 Communications Ltd.'s decline on listing day, one of the worst market debuts, would have only turned investors more cautious.
India has seen a record year for initial public offerings worth about $12 billion (about Rs 90,000 crore) as the retail frenzy drove equities. With benchmark indices surging to new records, multiple technology firms tapped the market to raise capital and offer exits to investors. The new-age IPOs, barring Paytm and Fino Payments Bank Ltd., garnered high demand.
Most companies that listed in the country in 2021 rose by an average of 20% in the first session, Bloomberg data showed. And technology firms, too, surged, barring a couple of exceptions. But they haven't been able to maintain momentum.
Apart from PB Fintech Ltd., parent of Policybazaar, Zomato Ltd. and Nykaa, the shares have seen volatility. Five such companies have fallen 30% or more from their peaks.
And Paytm's debut day drop of as much as 40% may make investors more cautious about the upcoming IPOs of technology-driven companies, including One Mobikwik Systems Pvt., Droom Technology Pvt., Softbank-backed Oyo (Oravel Stays Ltd.) and Bhavish Aggarwal's Ola (ANI Technologies Pvt).
Valuations of new-age firms are under scrutiny. Multiple analysts that BloombergQuint spoke with after Paytm's listing debacle advised caution.
These are great businesses but "valuations are like out of the moon", Sunil Singhania, founder of Abakkus Asset Manager, said in a recent interview. "We're staying away from investing in those really hyped companies."
Others like Nippon India Mutual Fund's Manish Gunwani, however, advised not to dismiss these businesses "as a bubble" outright. “Their businesses are genuine. We use their services on a daily basis,” he said in a separate interview. A better way to judge their performance is to see their market capitalisation, future opportunities and unit economics, rather than going by their price-to-earnings ratios, he said.
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