Currently, e-commerce businesses have made quite a name for themselves. Their titular value has attracted small and retail investors, creating a splash in the unlisted market, reports The Economic Times.
A few household names in this space are ANI Technologies (Ola), Oravel Stays (OYO Rooms) and One97 Communications (Paytm). Unaware of challenges like value fluctuation and limited liquidity in the unlisted market space, a large number of investors throng to these counters. And, others are drawn to it by the attractive valuations and herd mentality.
Shares of Ola, OYO Rooms and Paytm are currently priced at Rs 27,500, Rs 75,000 and Rs 17,000 respectively in the unlisted space, as per Abhishek Securities, a firm dealing in unlisted shares. This is so even as the companies have been incurring losses. Yet, these companies continue to command sky-high valuations in the unlisted market.
Moneycontrol could not independently verify the report.
Sandip Ginodia of Abhishek Securities told the paper that the e-commerce industry had a different business model as compared to traditional businesses. Neither do they have any tangible assets (land, plant or warehouse) nor do they have any other reserves in the face of the huge losses they incur. Despite all this, their value keeps going up to billions, he told ET.
Until it gets listed, the fair value of a stock is very subjective. Kolkata-based value investor and co-founder of SEBI-registered SA Investment Advisors, Arun Mukherjee, told the paper that the “greater fool theory” could be discerned behind the skyrocketing valuations of these e-commerce players.
“That theory says it is possible to make money by buying securities, whether or not they are overvalued, and by selling them for a profit at a later date. This is because there will always be someone (a bigger or greater fool) willing to pay a higher price,” he told ET.
Mukherjee also told the paper that investors must be very careful while investing in the unlisted space as he believed that, at some point, bubbles created by e-commerce companies would burst. Such players, in order to do their business, tap the gullibility of Indian customers who fall for discounts and offers, he added.
However, a contrary view is put forward by analysts. They say that promoters of e-commerce giants want their stocks to trade at a premium among a select investors. Hence, some companies do not opt for a stock or split or bonus issues.
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