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market | IST

As D-Street awaits Paytm IPO listing, what Zerodha's Nikhil Kamath thinks of new-age businesses

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Zerodha's Nikhil Kamath believes Nykaa will perform well, citing its "great management" and "brilliant business model". But he has one advise for investors eyeing new-age companies: Don't buy just because 100 other people are buying, and do your own research.

New-age companies are the talk of the town as more startups eye Dalal Street for their capital needs. Batting for the often high valuations commanded by new-age businesses, Nikhil Kamath, Co-Founder and CFO of Zerodha, believes the real question to be asked is whether a company will grow for a long time, and not whether the premium that investors pay for it today is justifiable.
The remarks from the CFO of the country's largest brokerage by client base come at a time when Indian equities have broken a chain of records this year, though experts have warned against excessive valuations.
Market participants often find it hard to value startups, many of which are yet to achieve profitability.
"Maybe the way to value these (new-age) companies is not a multiple of profit like we have valued companies historically because these businesses are different. There is a precedent in America, for example, of companies which were not profitable for a long period of time... companies like Amazon, which have turned it around and are continuing to grow even today. I don't think we can look at these companies from one lens," Kamath told CNBC-TV18.
"What we question often is not whether the company will grow and do sustainably well for a long time, but if the premium that we are paying is justified," he said.
Citing the example of cosmetics-to-fashion platform Nykaa, whose parent made a bumper debut in the secondary market recently, Kamath said the company is expected to perform well, citing its "great management" and "brilliant business model". In many ways, Nykaa has done exceedingly well, he said.
"Though I might contest the valuation it receives today, the fact that it is a good company that will do well in the next decade, I think that's not something I'm questioning at all," he said. Yet, he advises against betting all the chips on new-age businesses.
Kamath suggests doing thorough research before buying into any stock "just because 100 other people around you are buying".

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Nykaa shares debuted on stock exchanges at a premium of up to 79 percent, making entry among the top 10 debutants of 2021 so far, outshining the likes of Indigo Paints (75 percent), Devyani International (57 percent) and Zomato (51 percent). The company's primary market offering saw a subscription of 82 times the equity on offer.


FSN E-Commerce Ventures reported a net profit of Rs 1.2 crore for the September quarter, as against Rs 27 crore for the corresponding period a year ago. That despite a 47 percent year-on-year increase in revenue to Rs 885.3 crore.
"When one enters the stock market, especially companies where valuations are not easily understood, it is important for retail investors to remain extremely cautious," he said. Speaking on the overall market, Kamath warned of "plenty of turmoil ahead".
One97 Communications, owner of the Paytm digital platform, is set to hit the secondary market on November 18.
Kamath said he wouldn't ask investors to stay away from Paytm. "I haven't researched Paytm to the extent that I could give you an expert opinion on it. Some very smart investors, like SoftBank, have bet the bank on it and they seem optimistic about the future of Paytm and what it could do and what it could pivot into in a way," he said.
Financial markets are cyclical by nature, as they have always been, and the current irrational optimism in many ways will not continue forever, he said. "One has to remember that to while in a multi-cycle stock market people have to have some amount of caution and practice increased discipline," Kamath said.


He also warned retail investors against chasing shares of expensive companies.
"A lot of paper coming in today seems to be though offered for sale (OFS). It is a lot of smart money is exiting to retail... I don't think that is good for the stock market financial ecosystem in India overall," Kamath added.