The list of stocks is getting quite extensive. Do you think one of the reasons we are seeing a renewed interest in some of these stocks is that there’s now a clearer path to profitability? At the time of their listing, it wasn’t all rainbows and butterflies—there were a lot of questions around valuations, etc.
Sunil Subramaniam: Partly that, but also because there is so much liquidity in the market that what’s obvious has already been priced in. I think liquidity is now chasing future potential, taking risks on what will deliver down the road. Not all of these bets will pay off, but given the excess liquidity, sectors like infrastructure have been priced in for so long that it’s difficult to make extra money from them. Some might even say their valuations are very rich. In contrast, the future prospects of these new-age businesses are emerging. Even if you invest in five and only one or two succeed, they could still pay off under a risk-reward framework. So, it’s a combination of excess liquidity and the clearer path to profitability you mentioned.These businesses take time to build core potential. When they launched, there was a lot of hype, but the reality lagged behind. Now, the world is changing, and companies like Zomato and Nykaa are gaining traction at the ground level. Another small factor is the composition of the investors. You’ve seen a strong rise in Demat accounts, largely driven by young investors. India has a large youth population, and many of these young investors are willing to take risks—they aren’t the traditional conservative types. The youth, along with increasing SIP flows into small and mid-caps, means fund managers are also turning to these kinds of names. It’s a risk-reward play where the perceived reward is higher than the risk, and liquidity is driving this momentum.
Given we’re talking about valuations, do you think a Fed rate cut could provide extra momentum? Growth stocks, DCF, and SOTB models tend to benefit from lower rates. Do you think that could be a meaningful factor here?
Sunil Subramaniam: These aren’t rate-sensitive stocks, so the first impact of a Fed rate cut would be on rate-sensitive sectors like banks and NBFCs. However, while they aren’t directly rate-sensitive, these companies are still highly leveraged, both financially and operationally. They spend heavily on sales, marketing, and advertising, so their high operating leverage means that any additional growth is essentially free, as they’ve already incurred costs for the next four to five years. A Fed rate cut, which increases liquidity and shifts flows toward equities, would benefit these companies. Established domestic businesses have their future profitability priced in, but these new-age companies have explosive growth potential—sometimes 8%, 10%, or even 50% growth—because of their operating leverage.
With a Fed rate cut, more liquidity from FIIs would flow into emerging markets like India, and FIIs understand these businesses as American consumers have been using similar ones. So, these companies would benefit, not because they’re rate-sensitive, but due to the increased liquidity flowing into new-age Indian businesses.One more point: when we talk about value, these companies aren’t considered “value stocks” in the traditional sense. Value means undiscovered value, and these companies are being judged on their past PEs, losses, or low profitability, which can make their valuations seem high. But it’s the PEG ratio that matters here—their growth isn’t linear; it’s exponential. From that perspective, they will never look like value stocks. However, if you factor in high operating leverage and explosive business growth, they could become multi-baggers in terms of returns, attracting more liquidity.