The bloodbath in new-age technology stocks listed on Dalal Street over the past few weeks have not impressed the Co-founder of Zerodha and TrueBeacon Nikhil Kamath, he wants more.
Shares of several technology startups such as One97 Communications (parent of Paytm), Zomato, FSN E-commerce (parent of Nykaa), PB Fintech (parent of PolicyBazaar), and others that stormed the public market last year have nosedived 20-60 percent over the past three months.
The selling in these stocks has been triggered by fears of higher interest rates reducing their net present value and in some cases like Paytm, doubts over their business model.
“From the very beginning, their valuations did not make sense. Even at current valuations, I don't see where the rationale is to enter these stocks,” Kamath told Moneycontrol in an interview.
Many of these technology startups had entered the listed space commanding premium valuations even though most did not possess a history of profitability. Companies like Paytm, which is loss-making, came at nearly 50 times price-to-sales multiple at the time of its initial public offering.
At the time a low-interest-rate environment, a rip-roaring rally in the secondary market, and investor obsession over high growth attracted many investors to such companies. Retail and high net-worth investors were among the biggest cohorts to lap up shares of these companies during their IPOs.
“I've been pointing this out for a long time that buying companies, which are loss-making at 1,000 times and 1,500 times multiples, is not sustainable,” Kamath said.
That said, some have already started to see value in new-age technology stocks. Brokerage firm Kotak Institutional Equities told its clients on Tuesday that a nose-bleeding fall in Zomato’s stock in the past few sessions “offers buying opportunity” as it remains optimistic on the company’s growth trajectory.
Similarly, brokerage firm CLSA India has initiated coverage on shares of Fino Payments Bank, a financial technology-focused payments platform, with a buy rating and a price target of Rs. 480, implying an upside of 23 percent.
Shares of Fino Payments Bank, One97 Communications, and FSN E-commerce rebounded 2-5 percent in trade.
Even on the broader market, Kamath is not convinced that the recent correction from record highs in October has provided a good entry point for investors. “When you look at the correction, it's tiny, right? It feels like a big one but for a market which has rallied 100 percent, a 3-4 percent correction is nothing in my mind,” he said.
“I remain fairly circumspect on the market, I have been for a long time now. In our funds, we are about 50 percent hedged.”That said, Kamath believes that the recent turbulence in the stock market could force the government to re-work its Budget to appease investors. “The current government is fairly opportunistic and they're good with their timing. I wouldn't be surprised if they're reworking the Budget based on how sentiment has changed over the last fortnight,” Kamath said.