Morgan Stanley remains logged into internet stocks, prefers Zomato and PB Fintech

Over the past year, Zomato shares have skyrocketed 160 percent in trade.

Even though internet stocks have seen a sharp re-rating, foreign brokerage Morgan Stanley remains constructive on internet stocks.

The brokerage noted that all the macro and micro factors are currently aligned for India's internet stocks.

As the dispersion in the stock returns rises, there is heightened focus on being stock specific and selecting stocks carefully. The way to select stocks is to take into account the operating environment, track record, outlook and valuation.

Based on this, Morgan Stanley favours Zomato and PB Fintech in the internet space, since they are outperforming other internet players

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Morgan Stanley reiterated its overweight call on Zomato, with a target price of Rs 235 per share. This implies an upside of 21 percent compared to the previous close.

The brokerage noted that Zepto's latest funding round further raised the relevance of the quick commerce channel. Zomato in a key player in the quick commerce space, following its acquisition of BlinkIt in June, 2022.

However, there is a strong probability of rising competitive intensity in the business for the near-term. If competition increases further, Morgan Stanley believes that BlinkIt could be pushed out of profitability, failing to meet current assumptions.

This could lead to selling pressure on the stock. However, the brokerage said that any possible correction in Zomato is a good buying opportunity for long-term investors.

Over the past year, Zomato shares have skyrocketed 160 percent in trade as compared to a 25 percent rise in the frontline index Nifty 50 during the same time.

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