New-age digital companies offer good investment opportunities, says A Bala of Aditya Birla MF

New-age digital companies may well be loss-making but if they keep working towards profitability and remain relevant in terms of consumer usage, they could offer a good investment opportunity in the stock market, says A Balasubramanian of Aditya Birla Sun Life Mutual Fund. 

"The relevance of these companies in the minds of consumers will remain very, very large. The usage and dependency of consumers or users of these platforms will only keep increasing," said Balasubramanian on the sideline of a virtual media event on Thursday. 

The veteran fund manager further added that there are instances in the developed markets wherein similar companies went through an initial phase of investment and growth, which ultimately led to a bottom-line improvement. 

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"That's the model I think is emerging from an India point of view… While question marks remain on who is giving better service and the survival of the fittest, there is no doubt that all such digital platforms play a huge role in terms of consumer usage on a day-to-day basis for various purposes. As long as they remain relevant and efficient, they will offer a large investment opportunity. But, how much to invest and when to invest will be a challenge that all fund managers will have to calibrate," explained Balasubramanian who has been at the helm of the fund house since 2009. 

Last week, Zomato made a strong debut on the bourses with the stock price gaining more than 80% on the first day when compared to its issue price of Rs 76. The stock is currently trading at Rs137 on the National Stock Exchange. 

Earlier, the initial public offer (IPO) of the food-delivery major was subscribed a little over 38 times with all categories of investors showing strong interest in the shares of the online major. 

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Going ahead, new-age companies like PayTm, Policybazaar, Mobikwik and Nykaa among others are looking to list on the Indian stock exchanges.  

The listing of Zomato was keenly followed to understand the manner in which the stock market would treat a new-age digital major that has a large market share but does not have profits to show. 

According to the IPO prospectus of Zomato, the company reported a loss of Rs 6,821.99 million in the nine months ended December 2020. The losses in FY19 and FY20 were pegged at Rs 10,102.33 million and Rs 23,856.01 million, respectively. 

"We expect our costs to increase over time and our losses will continue given significant investments expected towards growing our business," stated the food aggregator's draft prospectus.

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