Zomato, the country’s leading food delivery platform, has been included in the Bombay Stock Exchange’s (BSE) flagship Sensex index. The inclusion makes Zomato the first new-age tech company to join the prestigious 30-stock index, replacing JSW Steel effective December 23, 2024.
A milestone for Tech Stocks
Zomato’s entry into the Sensex underscores the growing influence of India’s digital economy.
The company that started as a restaurant discovery platform in 2008 has evolved into a significant player in food delivery and quick commerce, with its shares rallying 138% over the past year. This performance has outpaced the Sensex’s 14% return in the same period, showcasing investor confidence in tech-driven businesses.
The company’s revenue for FY 2021 to FY 2024 grew from Rs 2,118.40 crores to Rs 12,961 crores, highlighting its robust business model and market penetration. Its inclusion in the Sensex also reflects the stock’s impressive performance, with shares jumping to a six-week high following the announcement, driven by steady growth in core food delivery and the quick commerce segment, Blinkit.
Zomato’s market capitalization now surpasses traditional automotive giants like Tata Motors and Bajaj Auto, standing at Rs 2.75 lakh crore with a price-to-earnings ratio of 345.04.
Zomato shares fall
Despite anticipating significant inflows, Zomato shares experienced an unexpected dip on the day of inclusion, trading down by 2.09% to Rs 275.95 on the BSE.
This fall contrasts with the stock’s recent trends, which surged by 7% after the Sensex inclusion announcement and the approval of a Rs 8,500 crore Qualified Institutional Placement (QIP).
What’s ahead for Zomato?
The inclusion in the Sensex is not just symbolic; it’s expected to bring substantial financial inflows.
The food delivery giant’s inclusion in the Sensex is seen as a validation of its business model and market position. Analysts from Morgan Stanley have retained an ‘overweight’ rating on Zomato, adjusting their target price to Rs 355 from Rs 288, signaling strong confidence in its future growth trajectory.
Brokerage firm Nuvama estimates an influx of approximately $513 million into Zomato, while JSW Steel might see outflows of around $252 million due to its removal from the index. This shift is anticipated to influence passive investment and exchange-traded funds that track the Sensex, compelling them to adjust their portfolios to reflect the new index composition.
However, the market’s immediate reaction to a share price drop suggests that investors might be recalibrating their expectations or responding to broader market dynamics. The coming months will determine whether Zomato can sustain this prestigious position and continue its growth narrative.