- Zomato’s shares have been falling since the last five trading sessions, they fell by more than 18% today and may weaken further.
- This is due to GST, bearish global trends and the fear of tightening by the US Fed.
- People are selling this growth stock, however, it is the right time to make most of this opportunity and buy the stock with a long-term view.
Zomato’s stocks continued to remain under pressure on Monday. They fell by another 18.39% and are trading at Rs. 92.70 apiece on the BSE. This is the lowest that its price has been since its listing in July, last year.
The food delivery platform’s shares are higher by approximately 34% as compared to its issue price of Rs. 76 per share, however, it has plummeted by over 25% in the previous 5 trading sessions.
The fall in Zomato’s share price last week eroded about Rs. 15, 624 crore worth of investor wealth. Its market capitalization fell below the Rs. 1 lakh crore mark.
The Sensex tanked by more than 200 points in opening trade on Monday due to losses in index majors Wipro, Infosys and Bajaj Finserv. A largely negative trend in the global markets also contributed to the same. Further, traders said that unabated foreign fund outflows also put pressure on domestic equities.
The Sensex was trading 0.40% or 233.53 points lower at 58,803.65 in early trade. Similarly, the Nifty fell by 0.42% or 73.70 points to 17,543.45.
V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services said, “The trend in global stock markets has turned distinctly bearish. Last week S&P 500 and Nasdaq closed 8% and 15% below their all-time highs. The sell-off in tech stocks has been brutal last week. European stocks too turned bearish. An important feature of the tech sell-off is that the bulk of the selling is happening in non-profitable tech stocks. This trend is impacting stocks like Zomato and Paytm in India too.”
Analysts say that there is a risk-off situation across the globe, along with the fear of tightening by the US Fed. There is a sharp sell-off in growth stocks, especially where new-age companies are concerned. Many of them came out with unrealistic valuations due to the euphoria in the market and their share price is bound to be affected.
The new GST rules that came into effect from 1 January, have made food delivery apps liable to pay 5% tax on restaurant services provided by them.
Santosh Meena, Head of Research, Swastika Investmart, said, “We know that only a few companies will survive in the long run and I believe Zomato has the potential to perform in the long run. The recent price correction is leading to stock at a reasonable valuation where aggressive investors can use this correction as a buying opportunity with a long-term view.”
“Zomato shares are looking weak on chart pattern and it may go up to ₹75 levels after giving successive breakdowns at ₹110 and ₹100 apiece levels. Those who have this share in their portfolio should exit on the bounce while fresh investors are advised to take any buy position at current levels,” advised Sumeet Bagadia, Executive Director at Choice Broking.
“The sharp correction witnessed in the recently listed Internet and tech stocks like Zomato are driven primarily by more than 10% correction in Nasdaq over the last month. With an increase in interest rates, tech investors seem to be taking money off the table for the time being. With all technical indicators flashing red we do not see any sharp rebound in tech stocks,” said Abhay Agarwal, Founder and fund manager at Piper Serica, SEBI Regd. PMS.
While investors are worried about why Zomato’s shares fell, Abhay Agarwal said that it is a good opportunity for long term investors to add stocks like Zomato to their portfolio. There is only one other player in the food delivery platform market, and Zomato is the leader.
“Since the company is well funded and has profitable unit level metrics we are not worried about the correction in valuation. But tech companies that do not have a clear path to profitability will not see their prices recover in a hurry,” he added.
