Moneycontrol Pro Panorama | Dizzy valuations of startups face a litmus test

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The broad market is in selloff mode with the Nifty down 2.5 percent at 1.52 pm, but the wounds suffered by new-age startups that listed recently are deep. The rush to the exit by investors appears to match the race to get an IPO allotment, price no object, just a few months ago.

Zomato’s shares are down by 18 percent, the already beaten-down One97 Communications’ shares are still down by 7 percent, FSN E-Commerce (Nykaa) was down by 10.4 percent and PB Fintech (Policybazaar) was down by 10.1 percent. The selloff does not appear to have spared any startup, whether it had a visible pathway to profitability — such as Nykaa — or not.

What seems to have brought about this sudden change of heart? Investors could simply be taking money off the table, taking fright from the selloff in startups in the US market, where tech startups are taking a beating. Have investors suddenly become discerning about which companies they are investing in? This week’s FOMC meet may yield more insights on the Fed’s thinking that could explain the market’s skittishness. A less hawkish than expected stance could even calm markets somewhat.

For new investors, this is an early cautionary tale on the risks of investing in startups, where the valuation is based on non-traditional financial metrics and a focus on profits is considered as a dampener to growth. That this is coming early in the cycle, just a few months after some big listings took place, should be helpful in tapering expectations from future listings. While there are lessons for companies and investment bankers who evidently priced their IPOs too high, it is doubtful if they will learn it.

The bigger question for investors is, of course, if the broad market selloff will deepen. For now, we seem to be coupled to events in the developed markets, where central banks are plotting an exit from a low interest high liquidity era, with inflation becoming a source of concern. While this is one source of concern, how Indian companies fare in the December quarter and their outlook for FY23 will also play a bigger role in determining the direction of markets and whether investors will find other pockets of opportunity to invest in.

 Investing insights from our research team

Yes Bank Q3: Steady quarter, but too early to say yes

Why we like everything about Persistent except the valuation

ICICI Bank posts solid Q3 earnings, re-rating to continue

Do Q3 earnings indicate an end to Bandhan’s asset quality woes?

JSW Steel: Higher cost push likely to impact performance in the short term

Havells India Q3: Core growth continues, but margin concerns remain

What else are we reading?

The Green Pivot | Bajaj Auto drafts aggressive EV plank amid sagging sales

How Mphasis is bucking IT sector deal trend by winning large orders

The Eastern Window: Is China’s lockdown strategy sustainable?

Budget 2022: Urban job guarantee scheme holds the key

Budget Chart of the Day | Shot in the arm for realty

Budget 2022 | Implement old promises for banks before making new ones in the Budget

The titans of the metaverse have a bandwidth problem (republished from the FT)

Elections 2022 | The winds are in favour of party hoppers

Budget 2022 | To boost economy, India needs a green Budget

Technical Picks: ICICI Bank, HUL, Maruti Suzuki and Dixon Technologies (These are published every trading day before markets open and can be read on the app)
Ravi Ananthanarayanan
Moneycontrol Pro ​