Morgan Stanley Stays Bullish on Zomato, PB Fintech Amid Internet Stock Surge

Despite the sharp re-rating of internet stocks, foreign brokerage Morgan Stanley remains logged into internet stocks, preferring Zomato and PB Fintech over other players. 

The brokerage reiterated its overweight call on Zomato, setting a target price of INR 235 per share, implying a 21% upside from the previous close.

As per a Moneycontrol report, Morgan Stanley highlighted that all macro and micro factors are currently favourable for India’s internet stocks. 

As dispersion in stock returns increases, the focus on stock-specific selection becomes crucial, considering the operating environment, track record, outlook, and valuation. Based on these criteria, Zomato and PB Fintech are outperforming other internet players, making them Morgan Stanley’s top picks.

The brokerage noted that Zepto’s latest funding round has increased the relevance of the quick commerce channel. Zomato, a key player in this space, bolstered its position with the acquisition of BlinkIt in June 2022.

However, there is a strong likelihood of increased competitive intensity in the near term. If competition intensifies, Morgan Stanley believes BlinkIt could struggle to achieve profitability, failing to meet current assumptions.

This could lead to selling pressure on the stock. However, the brokerage stated that any potential correction in Zomato presents a good buying opportunity for long-term investors.

Zomato shares have surged 160% over the past year, significantly outperforming the 25% rise in the frontline index Nifty 50 during the same period, added Moneycontrol.

Over the past five quarters, it consistently gained momentum, becoming one of the hottest stocks with a market cap touching $20 Bn (INR 1.6 Lakh Cr) and recording record profits of INR 351 Cr ($40 Mn) by FY24. 

However, since its Q4 results, Zomato has experienced volatility, reaching an all-time high of INR 207 in May but subsequently declining over 11% to INR 183.65 by early June, reflecting investor uncertainty amid broader market fluctuations.

Last month, shares of foodtech major Zomato tanked about 5% during intraday trading on Friday, May 31, dropping to INR 172.5 from the previous day’s close of INR 180.55. This decline followed Macquarie’s prediction of a nearly 50% drop in Zomato’s share price over the next 12 months.