As Zomato reported its first ever profit and Paytm’s net losses narrowed, the market’s cheer spread to the other new-age tech stocks. Nykaa, Delhivery and PB Fintech jumped on the positive sentiment surrounding the e-commerce companies as a result of the rub-off effect from Zomato’s Rs 2 crore profit. Analysts suggested that the shift to profitability while maintaining growth has rekindled investor interest in the scrips.
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The recent funding winter ensured that the competitive intensity in the respective industries remained at bay. This benefitted the new-age IT stocks as they used the breather to improve performance and get their house in order. The increased interest from institutions also points to the fact that these companies are on an uphill in terms of business and financial performance, said Manish Chowdhury, Head of Research, StoxBox.
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Despite being listed at a higher valuation, the correction in the share prices over the past year gave investors an ample opportunity to enter these shares as companies began to focus on earnings growth, said Raj Vyas. He added that the new age companies have just begun their trajectory on the profitability front, strong macro and uptick in discretionary demand, rapid adoption of digital commerce and better than expected trends in average order value which reflects steady earnings prospects for growth.
Profitability is extremely crucial, despite the topline growth seen in the new-age IT stocks. The companies are revamping their cost structures, so profitability could materialise in the following two to three years, said Ravi Singhal, CEO, GCL Broking. He added that investing in these stocks and making money is quite challenging since they are still valued quite highly when they are traded.
Outlook
Manish Chowdhury said that going forward, he is still positive on these companies from a long-term perspective. Over the long-term, they offer a relatively higher margin of safety and valuation comfort, while catering to a large market. Ravi Singhal added, “Only those investors who have a 3-5 year outlook should choose these stocks.”