MC Exclusive | Sunil Singhania: New-age firms face risk as competition chases market cap, not profits

Sunil Singhania

India’s highly valued firms may face a fresh set of risks as competition shifts from chasing profit pools to chasing market capitalisation, according to Sunil Singhania, founder of Abakkus Asset Manager.

“Earlier competition used to come up to take a share of the profit,” he said on the Wealth Formula Podcast with N Mahalakshmi. “Now competition is coming up to take a share of the market cap, which is more dangerous. In these businesses the top two will take 80–90 percent market share.”

Citing examples like Zomato, Nykaa and Paytm, Singhania said it remains difficult for valuation-focused investors like him to take large exposure in such high-multiple stocks. While he acknowledged their phenomenal growth rates, improving unit economics and a shift towards profitability, he noted that portfolios would not have 30–40% weight in such names.

“On a forward basis, if you just take it to FY28 or FY29, many of these companies start to look like 30–40x PE as the growth could be 100%. So somewhere you’ll have to say India is not only traditional companies, it’s also 5–7% allocation to these new-age ones,” he said.

Still, he flagged intense competition as a key risk. “If Zomato is at ₹3 lakh crore and Swiggy only at ₹2 lakh crore, another player might come up saying we can make $1–2 billion. That’s dangerous for both existing companies and investors,” he said.

He drew parallels with the paints industry, where the aggregate profit pool is just ₹6,000–7,000 crore. Despite this, multiple players have entered, lured by the market leader’s high valuation. “The motivation is the market cap because profit pool is not very large,” Singhania said.

He added that even consumer companies must adapt, as younger consumers are open to experimentation across personal care, apparel, and footwear. “The existing market leader will have to work that much harder to protect their turf,” he said.