Tiny, loss-making companies with excessively high valuations will have to prove their mettle eventually, said ace investor Shankar Sharma on Tuesday, while adding that new-age companies will have to bring in "a lot of hard work and a lot of cash burn" to be able to grow in size and scale.
Their business model still requires "a lot of significant marketing spend", said Sharma, Vice Chairman and Joint Managing Director of First Global.
“When you look at the financials of companies (new-age companies), the reality is they are tiny companies. It is just a hype around them, which is inflating a Rs 2,000 crore topline or a Rs 1,000 crore topline to a Rs 1 lakh crore valuation, which is absolutely nuts because they have an app. Once you have an app, a Rs 1,000 crore topline suddenly magically gets changed into a Rs 1 lakh crore valuation merely because you have something called an app," he told CNBC-TV18 in an exclusive interview.
Sharma's remarks come at a time when the RBI has flagged high valuations of domestic equities.
Headline indices Sensex and Nifty50 have regained some ground after declining about four percent in four straight sessions. For much of 2021, a liquidity-driven rally in shares has taken both gauges to unprecedented levels, triggering concerns about the sustainability of high valuations. A number of foreign brokerages downgraded their ratings on the Indian market and advised their clients to book profits.
Sharma has had a keen interest in new-age companies in the recent past. In an earlier interaction with CNBC-TV18, he advocated the availability of enough capital in the Indian market to support such businesses.
Paytm parent One97 Communications' shares rose 9.9 percent on Tuesday, narrowing the gap from their issue price to 30.5 percent from 36.7 percent the previous day. Last week, One97 made a weak debut in the secondary market, after its IPO -- the biggest share sale of all time in India -- saw a subscription of 1.9 times the equity on offer.
Though fully subscribed, the public offer failed to attract the kind of investor interest many of new-age companies have enjoyed in the recent past, including Zomato, PB Fintech, Nykaa and now Latent View Analytics.
The stock of data analytics firm Latent View made a stellar debut, listing at a premium of 169 percent over its issue price -- the best debut of the year so far. Its IPO was subscribed 326.5 times, also the highest this year.
Shares in PB Fintech began their journey in the secondary market at a 17.3 percent premium, after its IPO saw a subscription of 16.6 times.
Nykaa parent FSN Ecommerce Ventures' shares debuted at 77.9 percent premium. Its IPO was booked an overall 81.8 times the shares on offer.
Earlier this year, Zomato shares listed on stock exchanges at a premium of 51.3 percent, after its IPO was subscribed 38.3 times.
(Edited by : Ajay Vaishnav)
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