Fintech Stocks: Should You Be Afraid When Others Get Greedy and Sell Next-Gen Fintech and Technology Stocks? Pankaj Murarka Explains

Now that everyone is buying, is it time to sell some of the new-age tech and fintech stocks? Be greedy when others are fearful and be fearful when others are greedy. Now everyone is greedy when it comes to buying consumer tech and fintech stocks.
Pankaj Murarka: Not really. I have said this before. We have talked about it before. We are in the early stages of the growth and evolution of these businesses. I strongly believe that some of the leading companies in India in the next ten years will emerge from the technology sector. If you look at the United States, the Magnificent Seven, or the so-called Magnificent Seven, are companies that are only 15 or 20 years old, except for Microsoft and a few others, and they account for 30% of the US market.

Given the way consumers and businesses are evolving, technology will have a very important role to play both on the consumer technology side as well as on the enterprise side and some of these companies will become very big and will probably emerge among the top 20 or 30 companies in India. Zomato It went public about two or two and a half years ago and already meets most of the criteria for inclusion in the Nifty index portion.

Zomato is already among the top 100 companies in India in terms of market capitalisation and as a company, it is barely 10 years old. Once the growth curve of these companies reaches an inflection point, it is very important. If you have the right winners in your hands, the idea or strategy should be to wait patiently for them for the next 5, 10 or 15 years as these companies show exponential growth.We have reached what you might call a fair value point, as if Zomato has entered the top 100 club. Ola Electric’s market cap has almost doubled from its IPO till now. Policybazaar, at the current market cap, is trading at PE multiples that are difficult to fathom. My point is, have they moved from extreme fear to the zone of not greed but pricing perfectly?
Pankaj Murarka: Yes, they are priced perfectly if you look at the short-term growth over the next four to eight quarters. But in the medium to long term, one of them is that these companies are growing at a very fast pace. And if you look at the significance, some of these companies are among the fastest growing among all of corporate India or listed companies for that matter. And in many cases, I think the growth runway is much more sustainable.

Stock markets typically price in growth over the next four to eight quarters, so on a medium-term view, if this growth continues, these stocks likely have upside potential, even though they are fairly or highly valued from a short-term perspective.

Secondly, all of these companies have the inherent potential to surprise with upside growth. Talking about Ola, we sold a million electric vehicles last year collectively. In the case of scooters, we are now approaching a penetration of close to 19%. But the penetration of electric two-wheelers is less than 5%. That will grow significantly over the next 10 years. So, some of these companies have a combination of being leaders in disruptive technology and a strong momentum of a big transition or adoption that is happening either because of the transition, say, in the case of cars from ICE to electric or where consumers are transitioning from doing things physically to doing them digitally or doing digital adoption.

Keep in mind that the next generation is digital natives, which means that in practice, these companies will serve the next generation. Unlike my generation, I don’t think the next generation will do a lot of things physically. The current generations don’t bank physically. They don’t trade in the stock markets physically. All of these companies have gone completely digital. For many of these industries, the future is digital. I’ve said that specifically in the case of finance. I think the future of finance is digital. Any traditional financial company that isn’t adapting to digital or any car company that doesn’t have an electric vehicle strategy is risking its survival 10 years from now. Some of these companies that you’re talking about are leading this transition from the front in that regard.

So while valuations may look high from a very short-term perspective over the next four to eight quarters, from a slightly more medium- to long-term perspective, I still think that many of these companies have much more upside potential for a long-term investor.

So, let’s start looking at some examples. In the case of Zomato, the food delivery business is growing and the express commerce business is consolidating. But where is this business headed, given that in the express commerce business, competition is only going to intensify? There is Zepto, Swiggy, Flipkart, Bigbasket. Aren’t the marketplaces just assuming that growth will be perpetual and ignoring real competition?
Pankaj Murarka: Not really, because what happens in digital businesses is that the winner takes all. Typically, because of the way these businesses are designed and also the way they operate globally, the top two or three players in any vertical generate around 150% of the industry profits because the rest of the players lose out. In the case of Zomato, there is a clear case that Blinkit has established a clear advantage in terms of competition in the express delivery space and since India is a very large market where grocery and retail sales are around $800 billion, we can easily accommodate four or five players. So, not all of them are going to win that battle, but Blinkit seems to be one of the players that is going to win it.

Now, if you put that into context and consider that Blinkit is a leader in express commerce and in the grocery segment, then the potential value of that business in 10 years time could be significantly higher, meaning it could be equivalent to what DMart or Reliance Retail is or probably will be in the future as well, because consumers are moving from going to malls to having this luxury of having products delivered to their homes in 20 or 30 minutes.

The growth potential is still very significant in that regard and I still think there is a long way to go for all these companies. When you talk about Zomato’s food delivery business, their total customer base is just 4% of India’s population. Why can’t it be that 15-20% of India’s population is Zomato’s customer base? So, in the next 10 years, that could be a probability and in that case, probably the growth curve for them can be very long.

Think about it, 25 years ago, when… HDFC Bank We started and moved from state-owned banks to private sector banks. HDFC Bank started as an emerging bank and now has 10% of the banking industry. So some of these companies like Blinkit can account for 10-15% of India’s grocery business, in which case the size can be very significant.

I am also very curious to talk about Ola Electric. It is the most expensive EV stock in the world, a bit more expensive than even Tesla. And given the kind of movement the stock has seen since its listing, its value has almost doubled. I wanted to understand how you would approach it now for those who were unable to subscribe to the IPO.
Pankaj Murarka: I don’t have a view on how people who haven’t subscribed to the IPO should be treated, which means I wouldn’t like to comment on Ola’s valuation at this point, but one thing I can say for sure is that India is the largest two-wheeler market in the world. And that market is now at an inflection point. Typically in the auto industry, the inflection point comes when you reach 5% of the industry group’s volume.

Today, electric two-wheelers, scooters and bikes together have reached 5% of the industry volume and that is a turning point. So, as of now, it is very clear that we will see a very sharp growth in the electric two-wheeler segment, which is scooters and bikes together. It is still uncertain whether Ola will be able to maintain its market share or continue to lead because there are a couple of strong players already in the market like Bajaj and TVS which have a strong product portfolio.

But whoever is able to lead that space, at the end of the day there will be a treasure trove for that company or for the investors of that company. So obviously the jury is still out, but so far, I have to say they’ve done an incredible job.

So if someone holds onto their investments in, say, Zomato, Ola, Policybazaar, and is willing to digest 20-25% volatility and 10-15% drop, should one continue to invest in these stocks for three to five years because these companies can potentially be much bigger than they are in three to five years and the growth will surprise us?
Pankaj Murarka: If you own all of these stocks, my honest advice would be to go on a golfing vacation and not worry about these companies for the next 10 years. You’ll probably only check them once a year and not worry about what they say. stock market is doing