India’s dream of developing a market for consumer-focused technology startups has gotten back on track as digital payments leader Paytm leads a $6 billion rally among peers so far this year.
Shares of Paytm parent One 97 Communications Ltd. have surged 69%, adding more than $2.7 billion in market value, after it improved its profitability ahead of schedule. Food delivery platform Zomato Ltd. and Policybazaar operator PB Fintech Ltd. have surged 28% and 47%, respectively, adding over $1 billion each to their market valuations.
A big push for the nation’s tech unicorns in 2021 from government efforts and high-profile investors including Jack Ma and Masayoshi Son gave way to a global selloff in the sector last year on concerns of higher rates and recession. The collapse in stocks and some disappointing market debuts forced changes.
“The companies realized they had no option but to make profits or at least have a roadmap,” said Vikas Gupta, chief investment strategist at OmniScience Capital in Mumbai. “They are not only focusing on turning profitable but have slashed costs and exited businesses that were not promising.”
The rebound in India’s new-economy stocks follows a bounce in global tech shares, with the Nasdaq 100 up 38% this year, erasing its decline in 2022. While macro concerns have hardly dissipated, the sector has regained its pandemic safe-haven status, helped in part by enthusiasm for the promise of artificial intelligence and other emerging technologies.
Paytm and its cohort have gained even as shares of the nation’s old guard of IT service providers including Tata Consultancy Services Ltd. and Infosys Ltd. remain mired in concerns over global economic weakness. The rally in new-age tech stocks has also defied concerns over the financial health of formerly high-flying startup Byju’s.
Even with the gains this year, shares of Paytm still trade roughly 60% below their IPO price in November 2021. Analysts remain confident of the company’s ability to earn profits, however, with 85% having a buy recommendation on its stock.
FSN E-Commerce Ventures Ltd., the owner of beauty e-retailer Nykaa, is also still under water, but the stock has climbed back 27% from its all-time low in late April. Analysts have gained optimism on its potential to expand its fashion business as well as potential partnerships with global brands seeking to grow in India.
“These companies have gone through a period of consolidation and re-looked at some of their business models to focus more on profitability,” Morgan Stanley strategist Ridham Desai said in an interview with Bloomberg Television on last week.