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Investors in new-age firms suffer Rs 2-lakh-crore dent in wealth since listing

New-age company stocks have started falling again since last week after the lock-in period for Nykaa and Delhivery shares held by pre-IPO investors lapsed

November 26, 2022 / 10:15 AM IST
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Investors have lost over Rs 2 lakh crore in six new-age companies since they listed on stock exchanges after initial public offerings (IPOs).

Paytm owner One97 Communications Ltd was among the biggest losers, shedding over Rs 66,000 crore of market value. In percentage terms, it has lost over 65 percent from its issue price of Rs 2,150 per share.

FSN E-Commerce Ventures Ltd, owner of the beauty and personal care products brand Nykaa, has lost over Rs 51,000 crore in investors’ wealth, with its shares falling nearly 50 percent since listing.

Food delivery platform Zomato eroded nearly Rs41,000 crore of market value since listing, its stock falling nearly 41 percent.

Policybazaar and CarTrade Tech have fallen 69 percent and 65 percent respectively from their issue price. They have lost market capital of Rs 37,000 crore and Rs 4,500 crore, respectively, since listing.

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"The new age digital companies came out with their IPOs during the euphoria in the Indian stock market. Under euphoric market conditions even IPOs with unjustifiable valuations will sail through,” said VK Vijaykumar, chief investment strategist at Geojit Financial Services.

“This had happened many times in the past and again happened in the case of new-age digital companies, too. Then, when rationality sets in, market prices correct and when the market turns pessimistic, prices go to the other extreme", Vijaykumar added.

Expiry of lock-in periods

New age stocks have started falling again since last week after the lock-in period for Nykaa and Delhivery shares by pre-IPO investors lapsed.

The end of the lock-in period has created excessive supply of stock in the market, leading to sharp price falls, analysts said.

"There is an element of risk in investing in these new-age companies. So, for those investors with risk appetite, this is an opportunity to nibble into some of these stocks. There are some concerns on the sustainability of the business model of these companies and their ability to generate cash. But it is a fact that some companies like Zomato and Paytm have a very long runway of growth ahead of them," Vijaykumar said.

Many private equity investors have been exiting new-age stocks because they still are on the road to profitability. Analysts said the exits also indicate investors are not convinced about current valuations of these companies.

So far this year, Paytm lost 65 percent, Nykaa declined 50 percent, Policybazaar dropped 53 percent, Zomato fell 54 percent while Cartrade lost 42 percent.

"Unfortunately most of these new- age companies rushed to the public market before they could complete their venture capital cycles,” said G. Chokkalingam, founder and Managing Director of Equinomics Research and Advisory.

They rushed to the stock markets to raise money before they could prove their profitability or earn sizable profits, he said.

“I believe that most of them have not yet successfully completed the cycle of venture capital," Chokkalingam added.

Chokkalingam advises retail investors to stay away from new-age stocks because they would take a few more years to justify current valuations.

This belief is backed by the fact that many private equity funds are selling them in the open market even after they crashed more than 50 percent from their IPO prices, he said.
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Ravindra Sonavane
first published: Nov 25, 2022 12:10 pm