New-age stocks: Drop in trading volumes may be the first sign of bottoming

Fear of withdrawal of easy money and lack of profits will likely weigh on these counters in the near-term

The market correction has disproportionately affected several recently listed unicorns. All the sell-offs are on high volumes and have been accompanied by some negative advisories from brokerages and FPIs.

For example, Paytm (One97) is down 57 per cent from its IPO price of Rs 2,150. PolicyBazaar (PB Fintech) is down 20.6 per cent from the IPO price (Rs 980). Zomato closed at Rs 91 and is trading at 20 per cent above its issue price (Rs 76) but it’s down 46 per cent from its high of Rs 169. Nykaa (FSN E-commerce) at Rs 1,736 is down 33 per cent from its peak of Rs 2,573, although it’s well above its IPO price at Rs 1,125, MapMyIndia (CE infosystems) is also well above its IPO price (Rs 1,033) but down 25 per cent from its peak of Rs 1,917. 

These companies are all well-known brands with instant consumer recognition. While the consumption story may not be satisfactory in that consumption was damaged by the pandemic and lockdowns, it is improving.

Moreover, these IPOs occurred in 2021, long after the pandemic started. So that news was already discounted when the IPOs launched. In most of the IPOs there was strong participation from all segments in terms of over-subscription. Most of these companies are not profitable but investors were betting on high growth rates and so the stocks were highly-valued on the basis of metrics like price to revenues.

So what has changed? Sentiment has dramatically changed to negative. In fundamental terms, there could perhaps be more pressure on Zomato’s cash flows since it has to collect GST (the restaurants had to collect it earlier). However, this will not actually affect revenues or bottomlines. PayTm could also run into regulatory red tape due to its connections with NBFCs, which have exposure to the BNPL (buy now pay later) market. But PayTM itself is just an intermediary – its NBFC partners are the ones carrying the risks in these loans.

Sentiment has turned sour across global financial markets and sectors. One reason is nervousness across hard currency markets. Traders are waiting for the Fed’s FOMC meeting on Tuesday and Wednesday. The US central bank may start delivering on its recent hawkish pronouncements, with an accelerated taper and maybe, a policy rate hike.

The Bank of Japan has raised its inflation estimates for the first time in seven years, and although it has not altered its easy monetary policy (including a QE and a negative policy rate), this is being taken as a negative signal. The European Central Bank may be forced to take policy action if extremely high inflation persists across the Eurozone although much of this is caused by Russia-Ukraine tensions hitting energy markets, and inflation may be transient if tension eases.

In technical terms, it’s hard to make projections. These are all relatively recently listed and don’t have long price histories. In terms of sentiment, retail investors who received allotment may panic if they go into losses compared to the issue price.

Zomato, Nykaa, PayTm and Policybazaar have hit lifetime lows on Monday in their respective downtrends. Since they’ve broken all the trading supports, these stocks could be expected to drop even lower until the downtrends are exhausted. MapMyIndia has critical support at the Rs 1,390-1,400 levels just below current price and then again at Rs 1,270-1,300. We might assume that Zomato and Nykaa will also have some support at their IPO prices. In all these cases, the bottom is likely to be signalled by a drop in supply and hence, low volumes.