New age stocks rebound, Zomato, Nykaa rally over 5%, Paytm up 2%; should you add?

Shares of FSN E-Commerce Ventures Limited, the parent company of Nykaa, ended the session 1.72 percent higher at Rs 1355 on BSE. During the day, the stock rallied 5.47 percent to an intraday high of Rs 1405. Amid an overall volatile trend in the market largely due to Russia and Ukraine conflict, the stock has erased 8.74 percent of investors’ wealth in the past five days.

According to the research analysts of JM Financials, while the company is likely to face newer challenges to tackle and opportunities to explore in a post-COVID world, data trends and Nykaa’s strategic choices provide confidence that it is positioned to sustain its profitable growth trajectory.

Zomato shares, meanwhile, rallied nearly 7 percent during the day to an intraday high of Rs 85.20. The food delivery platform’s stock settled at Rs 84, up 5.33 percent from its previous close.

According to Deven Choksey of wealth management firm KR Choksey, both Nykaa and Zomato have a good business model, which is helpful to the consumer.

However, he believes a significant amount of plus will have to be on how these companies would generate sustainable profits, particularly for Nykaa.

In case of Zomato, it’s trying its best to overcome and reduce losses, but its profit-making ability on a sustainable basis cannot be seen very easily unless there is a drastic improvement in volumes, he said, adding that company is not likely to witness profits in the near future.

“Given that situation and risk that investors would not like to take in those businesses where the companies are not making a profit, these companies will have a natural phenomenon of having a price correction, to begin with, and the price correction would be coupled with the time correction eventually,” he told CNBC-TV18.

Choksey, therefore, believes, that Nykaa and Zomato are good business models for consumers but not necessarily for the investors for the moment and so, one will have to wait before investing.

Meanwhile, Paytm shares ended the day less than a percent higher after gaining 2.6 percent in intraday trade. The stock of the digital payments platform ended the day 0.86 percent higher at Rs 822.50. However, in the last five days, the shares have declined 4.6 percent as against the benchmark index Sensex which slipped 1.20 percent during the period.

The shares of peers including CarTrade Tech Ltd and Fino Payments Bank continued to be on a downward trajectory. While the former finished 2.93 percent lower at Rs 545, the latter was down 3.89 percent at Rs 268.10 at close and even fell to an all-time low of Rs 266 during the day.

Unlike those bullish on new age companies, Nirav Sheth, CEO-Institutional Equities Emkay Global Fin Services, suggests not looking at the long term perspective right now because it is difficult to figure at what pace users will turn to such firms.

“It has become very fashionable to say that you want to look at 2034-2035 and try and get a sense of what is going to work out. Even if you assume that these companies have a very strong competitive moat which means that they will exist 10-15 years down the line, it is not very easy to figure out what is the pace of adoption going to be,” he said in an interview with CNBC-TV18.

If one looks at monthly transacting users, the growth has completely plateaued – it was true for Zomato, it was true for Nykaa, he said, pointing to two ‘Indias’. “There is an urban market which is about 15-20 million households which are spending and so to extrapolate the last 2-3 years growth rate into 2035 doesn’t make any economic sense,” he explained.