Companies in the new era of e-commerce are going through a difficult period with rising cost of capital and falling valuations. The Nasdaq Technology Index is down 28% this year. NYSE The FANG+ index has fallen 33% since January 1st.
In India, the situation is no different.
The ET e-commerce index is down 44% this year compared to the Nifty 50 index’s 7.5% drop. The ET Ecommerce Profitability Index outperformed the other two in six months with a 31% negative return, compared to a 51% drop in the ET Unprofitable Ecommerce Index and a roughly 44% drop in the main index.
The Economic Times has launched three indexes – ET Ecommerce, ET Ecommerce Profitable and ET Ecommerce Non-Profitable – to track the performance of newly listed next-generation technology companies. ET compiled these three indexes with non-promoter market capitalizations, using December 2021 as the base period.
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In three months, the ET Ecommerce Non-Profitable index outperformed the income and main index.
Cartrade Tech, Delhivery and were included in the non-profitable index, while eight stocks, including CE Info Systems, Matrimony.Com and FSN E-Commerce, are included in the profitable index.
The ET Ecommerce Index includes all 13 stocks.
Shares of companies such as Zomato, One97 Communications and PB Fintech have fallen 60-70% from their yearly highs.
Analysts believe that excess liquidity has created a bubble and many businesses are missing a path to profitability, but the current conditions will bring a much-needed correction.
“As financial liquidity conditions tighten, companies are prioritizing improving profitability,” said Vivek Maheshwari, analyst at Jefferies India.
“High-growth companies scored higher in funding rounds, which contributed to faster cash burns. This virtuous cycle of growth and appreciation has now stopped. The cost of funding is rising and will affect the valuation,” Maheshwari added.