Zerodha CEO Nithin Kamath says sharp drop in new-age tech firms stock prices ‘scary’; target low volatility

Zerodha CEO Nithin Kamath has voiced his opinion on the sharp drop seen in the share price of listed new-age technology companies around the globe, terming it ‘quite scary’.

zerodha
Domestic markets have seen the listing of new-age companies such as Zomato, Nykaa, PolicyBazaar, Caretrade, and Paytm recently. (Image: REUTERS)

Zerodha CEO Nithin Kamath has voiced his opinion on the sharp drop seen in the share price of listed new-age technology companies around the globe, terming it ‘quite scary’. Nithin Kamath who is known for posting his observations on the stock market and business trends on Twitter added that only some of the fallen tech stocks may recover. “The sharp drops in stock prices of listed new-age tech companies across the world is quite scary. If history is a guide, only a small per cent of them will maybe bounce back,” the Zerodha CEO said on Twitter on Saturday. 

Paytm, Nykaa, others in red

Domestic markets have seen the listing of new-age companies such as Zomato, Nykaa, PolicyBazaar, Caretrade, and Paytm recently. Of these only Zomato trades above its listing price while others have slipped well below their listing price. The share price of Cartrade tech has fallen nearly 50% from the IPO price. Paytm, the largest IPO seen by Dalal Street to date is down nearly 40% from the issue price. Nithin Kamath’s view that only a small percentage of these will bounce back adds to IPO investors’ fear that they have lost significant value. 

Aim for lower volatility

Nithin Kamath further advised the new-age companies to prioritise lower volatility long term versus max short term gain, when projecting growth. Kamath is of the view that companies should target lower volatility in stock price, which would be good for investors looking at long term bets. “When companies are mostly valued based on what they project, counterintuitively, it may be a good idea to talk down than talking up the price. Lower volatility in stock price is also maybe something companies should strive for, which is good for long term investors as well,” he said.

The Zerodha co-founder said that the net worth of the core teams in most new-age businesses is tied to ESOPs and hence valuations. “Most, including the founders, suffer from anchoring bias. It doesn’t matter how large the notional profits on stock holding if the price hits a peak & goes down, it feels like a loss,” he said. Sharp changes in the net worth of the team can not be good for team morale and focus, and by extension the business.

Even in the US, marquee internet companies have taken a hit. Netflix is down more than 8% in December while Twitter has dropped 2%, and Elon Musk’s Tesla has tanked a whopping 18%. 

Impact on business larger

Nithin Kamath added that sudden and large drawdowns aided by volatility can have a larger impact on the business than companies whose stock prices gradually decline on the exchanges. He ended by quoting a Bollywood movie dialogue “Nazdiki fayda dekhne se pehle, door ka nuksaan sochna chahiye.” Reiterating his advice of looking at a long term view rather than near term gains.

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