Zomato’s blockbuster listing has raised hopes that the Indian stock market now has an appetite for new-age companies that are fast-growing but loss-making. (Representative image)
Travel platform Ixigo is the latest Internet company in India to file its documents for an initial public offering, joining companies such as Policy Bazaar, Mobikwik, Paytm, and Nykaa.
Zomato’s blockbuster listing has raised hopes that the Indian stock market now has an appetite for new-age companies that are fast-growing but loss-making.
However, First Global’s Shankar Sharma, famously known as the Big Bear of Dalal Street, is not ready to bite the bullet, just yet.
In a recent interaction on Moneycontrol Masterclass. Sharma highlighted why he is bearish on the slew of Internet IPOs hitting the markets.
- Can Zomato become the next Infosys, TCS, or HDFC Bank?
Shankar’s take:
I think after the Reliance IPO of 1977, the Zomato IPO is the second biggest watershed event in the history of Indian equity markets. With the Zomato IPO, a whole new breed of equity investors involved in tech has been created. I feel thrilled that the market has given this kind of reception to a new age, less than a 10-year-old company, something that only a NASDAQ would give previously.
Now, then the second question is whether these gains will sustain or whether these companies will go on to become huge companies like TCS and Infosys? I don’t want to go that far out. You can’t look that far out. Let’s just enjoy the moment.
- Will Shankar Sharma consider investing in Indian Internet IPOs?
Shankar’s take:
As a matter of policy, we don’t invest in IPOs. Zomato has been a real exception, but typically IPOs don’t make much money for investors. It is not just about whether it is loss-making, even Bharti was loss-making when it was listed back then.
The problem is this. The business models are inherently not innovative. The difference is that you have an app in the middle? That’s about all. So, the models of any of these companies are not really tech or innovative businesses. Online brokers have been there for a long time. The only innovation is burning money, acquiring market share by giving discounts and freebies.
These businesses have been built by easy VC money. Throwing those freebies and discounts, buying revenue, and therefore showing growth. The challenge is, can you grow without all these discounts and freebies? The number that Paytm has put out, the number that Zomato has put out clearly shows that moment you cut back on losses your top line plateaus. This is a fundamental problem. Can they grow without the freebies?
- Why the Amazon comparison is flawed
Shankar’s take:
Within Amazon, the e-commerce business was called CRAP – Can’t realize a profit.
AWS (Amazon Web Services) is what really bankrolled the entire expansion. We tend to make all our cases based on the survivor, the best survivor of the .com era, but there are many, many, which have not survived.
I’m not in the business of cautioning retail investors or any investor for that matter, the only constituency I answer to our investors is our own fund and we are not going to be buying any of these companies even if they are 40 rupees. There are far easier ways to make money in this world.
I have been an investor in Amazon, I put in $2 million, I sold the last of my stock about six months back having made 250 times my money. So I know a bit about internet businesses. I know a bit about how to make money in those, that was an exception. That was an exceptional company with an exceptional founder and an exceptional market, to begin with.
That’s not happening in India in a tiny market like India anytime soon.
- Will the market be as receptive to other Internet IPOs?
Shankar’s take:
Zomato was the first one, the first one usually does the best. It’s more the second, third, fourth, fifth, tenth, we’ll see how the market reacts with those models.
We’ve seen India evolve from a very small economy to a giant size economy, one of the world’s top five, seven economies in terms of size. And when I look at the sizes of these companies, it blows my mind how tiny they are.
You’re talking about a turnover of Rs 1,500 crore and Rs 2,000 crore. After spending $2-5 billion, you’re doing this turnover and that too with freebies and discounts and data analytics and network effect and flywheel effect and all these nice, nice effects. This kind of turnover is something a small and medium enterprise does in India.