NEW DELHI: In July 2021, when food delivery start-up Zomato made a stellar debut on the stock exchanges, it was widely believed that new-age tech companies are the new gold mines for investors.
However, if not all, most of these companies disappointed investors big-time and emerged as the biggest wealth eraser of recent times.
Shares of One 97 Communications (Paytm), India’s largest fintech firm, continued its downward journey and on Friday (January 21) plunged to a new low.
The stock hit a lifetime low of Rs 952, down about 4% from Thursday’ closing and lower 56% from its IPO price of Rs 2,150. The market capitalisation of the company also fell to a low of Rs 62,000 crore.
Paytm is now inching towards its most bearish target price of Rs 900, set by Macquarie analysts, who also were the first to rightly predict it’s initial fall.
However, few global brokerages such as Goldman Sachs, Morgan Stanley and JP Morgan are a bit bullish on the stock and expect a turnaround from its low point.
Morgan Stanley in December initiated overweight rating on the stock and set a target price of Rs 1875 a share, up around 50% from its Friday’s close while JP Morgan earlier this month set a target price of Rs 1,850, citing the fact that the shares are trading at a discount to its global and private peers.
The three firms were among the lead bankers for the Paytm public issue.
Despite this neutral/overweight view, the stock continues to decline as profitability of Paytm at large remains a distant dream. The other new-age stock that has wiped out half of investors’ wealth in no time is of used car marketplace CarTrade Tech, which came up with its public issue in August’21.
The company had set an issue price of Rs 1,618 apiece, and was listed at discount at Rs 1,610. Since then, CarTrade share prices have fallen to half as on Friday it closed at Rs 814 on the NSE.
Analysts at Citigroup Global Markets have set the 12-month target price at Rs 1,130, which is 30% lower than its issue price.
Its bull case price target has been set at Rs 1,570, while the he bear case target is kept at Rs 727.
Besides Paytm and CarTrade, PB Fintech, the parent company of Policybazaar, is another stock which has received lukewarm response from investors.
The stock hit a new low of Rs 857 in recent sessions and on Friday it closed at Rs 864 on the BSE. Since its positive listing in November last year, the market price of PB Fintech dipped around 35%.
Morgan Stanley in its recent commentary maintained its “equal-weight” stance and its price target of Rs 1,160 on the stock, which implies a nearly 30% upside from current levels.
Zomato and Nykaa, the two tech companies, which gave bumper listing gains to investors have also struggled in recent sessions.
For the first time since its market debut, Zomato shares have dropped below their listing price as selling escalated in the last four sessions.
On Friday, Zomato fell 10% to hit a fresh 52-week low of Rs 113.15 and closed the session at Rs 114. The stock has fallen nearly 15% in four sessions and its market cap now stands below Rs 1 lakh crore-mark.
Even Nykaa, one of the very few profitable e-commerce companies, is going through a selling phase. The stock on Friday closed 2% lower at Rs 2010 a piece, which also is around 25% lower than its 52-week high of Rs 2573.
The sharp correction in share prices of these internet-based companies comes at a time when stock markets have been under pressure due to unfavourable global cues.
The expectation that Federal Reserve would quicken the rate hikes has taken the US Treasury yields sharply higher, a big factor that triggered a strong sell-off in the equity markets. The benchmark indices Sensex and Nifty fell sharply by 3.57% and 3.5% last week.
However, the loss-making tech companies are under pressure due to other factors as well. Market analysts believe that new-age companies are not making profits and trading at an extremely rich valuation, hence a correction was overdue.
As for investors, who have purchased these stocks at high levels, it will be difficult for them to make profits or even recover their losses in short term as most of these stocks are trading 25-55% lower than their 52-week high prices.
A senior analyst said that a surge of 20-30% in PayTm and CarTrade from the current level gives an opportunity to investors to exit the stock.
“Investors, who don’t want to remain invested for 3-4 years should offload these stocks when there is a surge and invest the withdrawn sum in financial and IT firms. It is highly unlikely that these highly valued stocks will be multi-baggers like Tata and Adani stocks,” he said requesting not be named.
Deepak Jasani, Head of Retail Research, HDFC Securities, said, “Investors who put money in such IPOs should restrict the amount to be invested in each such IPO and keep a stoploss in terms of absolute loss per IPO if they do not have any medium-term conviction on the business prospects of the company. Investing in such high-priced IPOs pays off only in times of bubbly market conditions; hence investors should keep this in mind.”
