Fall Season: New-age Indian companies feel the heat

Stock markets have been under pressure in 2022 as investors bet that central banks, mainly the US Federal Reserve, will have to raise interest rates more aggressively to contain inflationary pressures. Such concerns have reflected in the spike in US bond yields, which has dimmed the appeal of loss-making companies in general.

Investors had lapped up the tech stocks, boosting valuations, on account of record-low yields on bonds. Analysts said compressed bond yields raised the value of future cash flow of these companies.

Now, with bond yields rising, investors are assigning lower valuations for companies that could generate cash flows sometime in the future, dimming the appetite for them. “Most new-age companies are not making profits and trading at an extremely rich valuation,” said Pankaj Pandey, head of research, ICICI Securities. “Confidence in these types of stocks evaporates when the market turns volatile, and liquidity tightens.”

The rally in these stocks since March 2020 was driven by the US Federal Reserve’s move to an ultra-accommodative monetary policy to cope with the economic effects of the Covid pandemic.

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Shares of online food delivery and restaurant discovery platform Zomato fell below its listing level after declining 15% in the last five trading sessions. Nearly Rs 16,000 crore of investor wealth has been eroded during this period. Zomato shares have dropped 33% from its peak after listing. The company launched its IPO at Rs 76 per share in July last year.

As the pandemic impact eases and inflation kicks in, margins are challenging for food-delivery companies, according to analysts. Shares of DoorDash, an American online food-delivery platform, declined 10% in the past five days and are currently trading 51% below their 52-week highs.