Robust growth ignites rally in new-age stocks, 45% gains made in 6 months

New-age stocks have made a strong comeback of late driven by robust revenue growth and improved profitability through reduced spending. Increased allocations by overseas funds and strong demand for recent public issues have further fuelled the rally. Analysts believe these stocks could continue to perform well so long as they sustain their growth momentum.

The ET E-commerce Index, comprising 13 new-age companies, has surged 45% in the past six months, outperforming the 12% gain in the Nifty Index and the 8% rise in the Nifty IT Index.

Shares of Zomato, PB Fintech, and One 97 Communications, the parent company of Paytm, have surged between 60% and 70% in six months, while Nykaa‘s promoter FSN E-Commerce Ventures and CarTrade Tech have gained 23% and 21%, respectively. Ola Electric, which debuted last Friday, has jumped 75% above its issue price.

“Improved capital allocation and inorganic growth have bolstered earnings for new-age companies, sparking a sharp rebound in their share prices over the last 6-12 months,” said Kunal Mehta, associate director at Equirus. “With lower cash burn and more efficient use of funds, these businesses are well-positioned to continue thriving.” Stocks like Zomato, Paytm, Nykaa and PB Fintech saw significant declines after their listings in 2021 during the post-COVID internet boom, leading to heavy losses for investors. As a result, many companies in this sector delayed their IPO plans. This month, however, three companies – Ola Electric, Brainbees Solutions (the parent company of FirstCry.com), and Unicommerce eSolutions – launched their IPOs.”The equity market is seeing significant liquidity inflows, and there’s a shift in perception among investors towards new-age companies as these companies begin to show profitability,” said Siddarth Bhamre, head of research at Asit C. Mehta Financial Services. “However, these stocks are suitable for high-risk investors.”Zomato shares have rebounded strongly, driven by broad-based growth across verticals and robust gross order value (GOV) growth. The company has reported consistent profits for the last four quarters. Similarly, PB Fintech turned profitable, posting net profits for the last three quarters, thanks to controlled employee expenses, an increasing mix of renewal business, and higher income from investments. The company’s focus on unassisted sales has also lowered costs and boosted profitability. Paytm shares, which fell 65% between October 2023 and March 2024 due to regulatory clampdowns, have since recovered by over 50%.

“What’s attracting investors to new-age digital stocks is their potential for long-term growth,” said VK Vijayakumar, chief investment strategist at Geojit Financial Services. “The growth runway for these companies is extensive, though profitability and valuations remain concerns. Zomato’s success in achieving profitability with growth has emboldened investors.”

Foreign institutional investors have increased their stakes in stocks like CarTrade Tech, PB Fintech, Delhivery, Honasa Consumer, and Zomato by 300 to 1,700 basis points between January and June 2024.

During the same period, domestic mutual funds raised their stakes in CarTrade Tech, RateGain Travel, Delhivery, IndiaMART InterMESH, FSN E-Commerce, and One 97 Communications by 180 to 778 basis points.