Digital companies may enter Nifty soon over the next few months: UBS

Thanks to the pandemic-induced lockdowns which have spurred adoption of digital platforms, some internet-based companies are expected to enter equity benchmark Nifty over the next few months, according to a foreign brokerage.

The country has created around 20 unicorns this year so far, taking the overall number of large startups with over USD 1 billion valuation to more than 60 now.

Some large startups have already gone public, while others are looking to list on the bourses as well.

Food delivery platform Zomato completed its Rs 9,300-crore public issue last month. Financial services platform Paytm is awaiting Sebi not for a Rs 16,600 crore issue, the largest IPO in the country till date, while ride hailing app Ola too is looking to raise around Rs 10,000 crore through an initial share sale.

E-commerce giant Flipkart, online education behemoth Byju's and hotel aggregator Oyo, among others, are likely to join the IPO bandwagon over the next 12-18 months.

Also, comparatively smaller ones like PolicyBazaar, Nykaa and Mobikwik too have filed IPO papers with the market watchdog.

Some of the large new-age companies going public are likely to get into the Nifty over the next few months due to their higher market capitalisation, Navin Killa, managing director and head of Asia telecoms, media and internet at UBS Global Research, said on Monday in a conference call.

There is a strong likelihood that the weighting of the new technology-based companies in the market capitalisation will keep growing from today's very low levels and may even close the gap with China and the US, he added.

Looking at the weighting of internet companies in the overall market capitalisation, in China it is 45 per cent and in the US it is around 30 per cent. On the contrary in India, it is below 10 per cent (USD 3.37 trillion or Rs 247 lakh crore market cap) and hence a big opportunity to correct the gap, he said.

Citing an earlier UBS report, Killa said the domestic digital market (excluding digital payments) is set to treble USD 400 billion by 2025, from about USD 130 billion now.

The biggest driver of this fast paced growth will be e-commerce, which will reach USD 150 billion by then and segments like food delivery, online ticketing and entertainment each commanding a USD 25 billion market opportunity.

Meanwhile, on a day when the market was on a song and scaled new peaks (Sensex vaulting to 56,890, and the Nifty closing at 16,931), Sunil Tirumalai, equity strategist at UBS Securities India, said the market is too over-valued and set to correct in the near and medium term.

The UBS house view for the Nifty is 16,000 over the next 12 months, he said, adding the index has run up quite fast. The Swiss brokerage does not have a view on the Sensex.

Since the market has performed really strongly despite not so good earnings, which are lower than other emerging markets, there can be some period of consolidation. Most foreign portfolio investors are finding other markets at better valuation with better growth and earnings prospects, he explained.

He further said globally and also domestically, the markets face many risks such as inflation, which though by and large is quite transitory.

Also, new COVID-19 variants pose bigger threats to the markets and one should not rule out the risks from the pandemic for two years at least, he added.

Apart from these, the domestic markets face larger risks from the many key state elections, as ahead of those the government may chose populous measures at the cost of the economy, he pointed out.

Besides, more savings are going away from the markets into consumption as the lockdowns ease. After pumping in record amounts last year, foreign investors are leaving the domestic market now due to very high valuation, he added.