Shares of new-age companies tumbled as India's equity benchmarks dropped, tracking a global selloff amid concerns over Fed tapering and rising tensions in Ukraine. Analysts expect more selling pressure for India's internet companies.
Shares of Zomato Ltd., FSN E-Commerce Ventures Ltd. (parent company of Nykaa), One97 Communications Ltd. (parent company of Paytm), PB Fintech Ltd. (parent company of Policybazaar) and CarTrade Tech Ltd. suffered a rout in Monday's session. Most now are trading below the listing price.
According to G Chokkalingam, founder and managing director at Equinomics Research & Advisory, most of the new-age companies will not become profitable even after three years, which could result in the stocks correcting by a further 15-25%.
Many of these firms rushed to launch their initial public offering even before completing the entire venture capital cycle, and without a clear idea of the path to profitability, Chokkalingam added.
Deven Choksey, managing director of KR Choksey Investment Managers, said that the valuations of these new-age companies, coupled with the lack of any significant headway towards profit is a cause for concern, as these firm struggle to justify the steep valuations.
"The current sell-off is happening as investors losing money in other pockets of the markets tend to sell off assets quoting at a premium, but with no profit visibility (like new-age companies)," he said. "This is a global phenomenon. Most of the new-age companies globally do not have complete visibility on profit, even Netflix."
Astha Jain of Hem Securities, however, said the correction is similar to the tech rout in the U.S.
Jain attributed the decline to markets undermining the valuations, and preferring growth stories over the past year amid a liquidity glut. The coming year, she said, would be about "fairly-priced stories and not growth stories".
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