The ongoing turbulence in Indian equity markets has made new-age technology stocks wobble as investors remain jittery about the economic growth concerns. In addition, the almost certain interest rate hike by the Reserve Bank of India (RBI) -- scheduled on Friday -- dampened market sentiment further. The domestic indices fell for the fifth straight session on Tuesday, dragged by banking, financial and automobile shares.
In sync, the new-age tech stocks -- particularly Paytm, Nykaa and Zomato -- are trading at a much lower range than their respective record highs. Shares of Paytm's parent firm One97 Communications plunged more than 66 per cent from their 52-week high of Rs 1,961.05 and 69 per cent lower from the issue price of Rs 2,150.
Cosmetics-to-fashion retailer Nykaa's parent firm FSN E-Commerce Ventures is down almost 50 per cent from its all-time high of Rs 2,574. The stock, however, traded 14.5 per cent higher than its issue price of Rs 1,125 on Tuesday.
The weakness can also be seen in the shares of online food aggregator Zomato, which slumped more than 65 per cent from their all-time high of Rs 169.10 and 22.5 per cent lower than the issue price of Rs 76.
Given the current volatility in the markets and domestic indices falling for five straight sessions, these three stocks managed to settle on a higher note in the previous session (Tuesday). Paytm rose 0.38 per cent to close at Rs 659.75, Nykaa climbed 0.73 per cent to settle at Rs 1,287.65, and Zomato soared 1.73 per cent to finish at Rs 58.85.
So, does it imply that these new-age tech stocks have seen their worst? Here's what experts opined:
Kranthi Bathini, equity strategist at WealthMills Securities said, "The stock has plunged nearly 50 per cent from its record highs and also it was a disappointing listing in terms of the IPO. But factors that added to the disappointing listing and underperformance of the stock are all these new-age (digital) companies have been listed at exuberant and exorbitant values. Post that, due to its quarterly performance, the stock corrected 50 per cent from its yearly highs. But going ahead, the stock is in a completely fair value zone right now and also the business momentum is continuing. The bigger question for these stocks is when they are going to become profitable and generate free cash flows. Keeping in view the business models and sustainability matrix of the business they are in, an investor with a long horizon and high-risk appetite, can definitely take positions in companies like Paytm as these valuations are very good for entry-level investors. Overall, the company has to generate free cash flows and needs to give guidance with respect to their profitability."
Global investment bank and financial services company Goldman Sachs turned optimistic about Paytm with a target price of Rs 1,100.
"While the Paytm stock is down on regulatory headwinds and valuation contraction for high growth companies, we see the business model continuing to show strong traction. Paytm as one of the most compelling growth stories at an attractive price," it said.
Sumit Pokharna, Research Analyst, Vice-President, Kotak Securities Ltd said, "We are bullish on Nykaa and recommend 'Buy' with a Fair value of Rs 1,770. Nykaa reported a healthy gross margin alongside optimization in fulfilment costs and ad-spends in Q1 2022-23 FY23. Future Outlook: Investment in SuperStore, private label & international expansion. Key operating metrics: strong (Gross merchandise value) GMV growth driven by customer conversions. In Q1 FY23, the company reported stronger-than-expected revenue growth of 41 per cent YoY (7 per cent ahead of estimates). Revenue growth trailed GMV growth as fashion GMV increased at a faster pace. Gross margins came in at 44.4 per cent (up 70 bps QoQ) in Q1 FY23. We have valued the stock on discounted cash flow (DCF) method and the fair value is Rs 1,770."
Santosh Meena, Head of Research, Swastika Investmart said, "Zomato has witnessed a significant underperformance since its listing. The company has been shunned by the investors post the beginning of the rate hike cycle by the central banks globally and the huge sell-off in the tech sector. Further, the company will take significant time to show profitability and the current market sentiments are punishing startups that are growing without showing profits. Therefore, we are averse to Zomato Ltd. Despite its strong position in the online food service platforms and the current correction, we may see some recovery or bargain buying at lower levels. Technically, It found a base at the 40 mark and then witnessed a breakout of down sloping channel formation which is giving some hope to the bulls. On the upside, we can expect a move towards the 75-85 area but this is a critical supply zone. On the downside, 50 will act as an immediate and strong support level."
Copyright©2023 Living Media India Limited. For reprint rights: Syndications Today