Is It The Right Time To Get Into New-Age Stocks?

Consider this: Ola Electric which has listed this month was up 107 per cent within six trading sessions. By August end, the company’s shares are up 55 per cent from its listing day price. Apart from Ola Electric, other new-age stocks which listed a few years ago, such as Zomato and PolicyBazaar, have significantly outpaced the Nifty 50 index in 2024, with PolicyBazaar leading the pack. Year-to-date (YTD), these stocks have delivered returns ranging from 9.7 per cent to an impressive 118.5 per cent, with Paytm, Delhivery and Easy Trip Planners being the outliers, posting negative returns. In contrast, Nifty 50 has gained 16 per cent so far in 2024. 

The table clearly shows that most of these new-age stocks have outperformed Nifty 50, with the exception of Delhivery, Easy Trip Planners and Paytm. Paytm’s shares struggled due to regulatory challenges. 

Valuation Debates During their IPOs

At the time of their IPOs, the market was divided on the valuation of these companies. Some argued that these high-growth stocks couldn’t be evaluated using traditional valuation metrics, while old school investors were focused on cash flow metrics. The latter perspective eventually prevailed, forcing these companies to provide clear profitability timelines and meet quarterly milestones before their share price started showing momentum. 

New-age companies in India, like Zomato, Nykaa and PolicyBazaar, have shown signs of improvement after facing volatility in stock prices post-IPO due to various factors. These companies have realised that they need to demonstrate a clear path to profitability to survive 

Stock Price Trends

Several new-age stocks have shown strong recovery over the past year. Zomato has been a standout, surging nearly 151 per cent in the last 12 months, with 102 per cent gain so far in 2024. Zomato’s upward trajectory continued in August, adding nearly 11 per cent. The stock recently hit an all-time high of ₹280 and is currently trading at ₹251, up 160 per cent from its 52-week low of ₹96.50. 

PB Fintech, the parent company of PolicyBazaar, has also delivered impressive returns, climbing nearly 130 per cent over the last year and nearly 119 per cent year-to-date. The stock has jumped over 20 per cent in August alone and has reached a record high of ₹1,849 in August, marking a 180 per cent increase from its 52-week low of ₹661.30 set in October last year. CarTrade Tech has witnessed a good rise, gaining 63 per cent over the last year and 18.3 per cent in 2024 YTD. 

CarTrade Tech hit its 52-week high of ₹974 in May this year. It is trading at ₹854.40, 12 per cent below the 52-week high, but has rallied close to 66 per cent from its year low. Nykaa (Fsn E-Commerce Ventures) has posted a 57.5 per cent gain over the past year and is up by 21 per cent in 2024 YTD. The stock has risen more than 5 per cent in August. The stock recently reached a 52-week high of ₹229.90 and is currently trading at ₹208.56, up 57 per cent from its year-low. 

Honasa Consumer has not completed its one year yet but has advanced more than 18 per cent in 2024 YTD. It has gained almost 6 per cent in August so far. The stock recently hit its 52-week high of ₹537.90. It has now surged 97 per cent from its 52-week low of ₹256.10, hit in November last year. However, not all the new-age stocks have performed well. One 97 Communications (Paytm) has faced severe regulatory challenges, leading to a decline of 27.1 per cent over the past year and 3 per cent in 2024. 

Currently, Paytm is showing signs of recovery with gains in the last three months, but it remains well below its October 2023 high of `998.30. Currently, the stock is trading at ₹624.90, which is still 37 per cent lower than its year high but has rebounded by 101.5 per cent from its 52-week low of ₹310, reached in May this year. Delhivery has had a muted performance, adding just 10 per cent in 2024 YTD, while Easy Trip Planners has posted a 2 per cent decline. 

Interest Rates and Impact on New-Age Stocks 

A favourable interest rate environment is positive for these new-age companies. These stocks tend to rally whenever interest rates decrease, as they are closely tied to demand, which is boosted by lower rates. Additionally, pick-up in demand impacts valuations, especially those based on the DCF methodology. In the DCF valuation method, interest rates are used to discount future cash flows. As interest rates drop, the fair value or net present value of the stock price rises. 

Strategy for Investing in New-Age Companies

New-age companies in India, like Zomato, Nykaa and PolicyBazaar, have shown signs of improvement after facing volatility in stock prices post-IPO due to various factors. These companies have realised that they need to demonstrate a clear path to profitability to survive. With a recent trend of these companies focusing on turning profitable, investors have begun to show increasing interest in such stocks. Hence, companies like Zomato, PolicyBazaar and Nykaa have delivered good to decent returns to their investors. 

Conclusion

Going forward, market participants will closely monitor the earnings reports of such companies and their future plans as well. While the road ahead will be challenging, it also presents significant opportunities for companies that can maintain their growth, manage costs and consistently generate profits, given the vast potential in this sector for the coming years. Investors should recognise that the products and services offered by these businesses are particularly appealing in larger cities in India. However, there is a significant untapped market to capture. Increased market penetration and consolidation within their respective sectors could drive revenue and profit growth, which may eventually be reflected in their stock prices.