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Are you interested in buying shares of Flipkart?

Mar 17, 2015

In this issue:
» Global central banks are eyeing Indian debt
» M&A activity is gathering pace
» Will Greece be allowed to exit the Euro zone?
» ...and more!

00:00
History doesn't repeat itself but it does rhyme! This quote attributed to Mark Twain is one we relate to when it comes to the stock market. In every bull market there is always one story that is loved more than all others. Just think back to 2007. Real estate investing was the craze in those days. Companies were valued at insane valuations on the basis of their 'land banks'. If we go back to 1999-2000, it was the tech story that caught investor's fancy. What about the current bull market? No prizes for guessing the story in focus this time around: e-commerce.

A mind boggling amount of money has already been invested in this sector. Venture Capitalists (VCs), Private Equity (PE) funds along with many high profile individuals have bet big money on this story. Consider the biggest e-commerce firm in India, Flipkart. This one company alone raised US$ 2 bn last year! This despite the fact that everyone knows it's nowhere near profitable. The deep discount model that the company follows ensures that it keeps on burning cash. So why are investors so bullish about Flipkart? The one word answer is growth.

Investors have bet big that the company will, in the long run, achieve a dominant position in India's retail market. At that time, even a small profit margin will result in a big payoff. Should you buy into this logic? We don't think so. According to us, Flipkart has three things in its favour: the first mover advantage which helped establish its brand, India's fast growing online shopping market and a lot of cash supplied by investors. However, it is yet to establish a profitable business model. Nor has it been able to publicly state a plan to become profitable.

So it came as no surprise to us that Flipkart is reportedly planning to list on an international exchange, possibly the NASDAQ. This market has a long history of chasing growth over profits. India's IPO rules thankfully are a bit strict when it comes to listing of an un-profitable firm. But tech investors in the US face no such hurdles. Early investors in Flipkart will now get a chance to unload their shares on to gullible Americans. Readers of the 5 Minute WrapUp, would be aware about why we think investing in Flipkart is a dangerous game.

We believe that until e-commerce firms establish a strong moat around their business, Indian investors should avoid investing in any of their IPOs. The high growth, low margin e-commerce world is prone to intense competition. Without a durable competitive advantage, profits will be very difficult to achieve. And without profits, is there anything that needs to be said about the direction of the stock price post listing? So, if Flipkart was to change its decision in the future and choose to list in India would you still be interested in buying its shares?

Do you think Flipkart will ever get listed in India? Let us know your comments or share your views in the Equitymaster Club.

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02:28
While e-commerce may be the hottest game in town right now, other sectors are joining the party too. Consider this: Mergers and Acquisitions (M&A) amounting to nearly US$ 5 bn has been announced already in 2015! As per an article in the Economic Times, nearly 90 deals have been signed in the first two months of the year. While the frenzied action in the e-commerce space has boosted the number of deals, it is the pharma sector that's on top in terms of value.

It's common to see a lot of M&A during good economic times. However, the Indian economy is yet to move into a high growth path. Corporate India seems to be positioning itself for good times ahead by filling up gaps in their product and service offerings. The buyout of Panaya by Infosys is a case in point. As investors, it is important to keep a close watch on the valuations at which these deals are done. Overspending on large acquisitions is one of the surest ways of hurting shareholder value.

03:18
  Chart of the day
As volatility continues to reign because of loose monetary policies of the developed world, many other global central banks are finding the Indian debt market very attractive. Indeed, out of the total FII investment in Indian debt, global central banks accounted for around 15% in January 2015. In January 2012, this figure stood at a mere 2%. The most prominent countries investing in the Indian debt market include Norway, Singapore, Malaysia and the Middle East among others. Policies of the central banks in Europe, the US and Japan has driven the yields on bonds in those regions to less than 2%. In contrast. Indian bonds are giving an attractive yield of 7.5% as reported in the Economic Times. No wonder that these banks are then making a beeline for Indian shores. What has also attracted them to Indian debt is the relative stability of the Indian rupee in recent times and the prospect of a relatively higher risk adjusted return. And as long as the expansion of the monetary base by Europe, US and Japan continues, we will not be surprised if money continues to pour into Indian debt markets going ahead as well.

Global central banks are flocking to India


04:12
Will it, won't it? Exit that is. This is the question that has occupied Europe in recent times with respect to Greece's place in the Euro. Greece has a huge debt repayment deadline looming ahead and it is scrambling to find funds to pay this off. Failure to do so could possible force it to exit the Euro. The last time Greece was in such a dire situation, it was bailed out by the European Central Bank. Will this time be any different? Many people believe so and are bracing for a Greece exit.

But noted economist Nouriel Roubini thinks otherwise. As reported on Newsmax Finance, he believes that should Greece exit, there will be a run on banks as Europeans run to withdraw money from their accounts. Borrowing costs would surge for countries such as Italy and Spain. And though Greece and Germany have been at loggerheads with respect to a bailout, the latter realizes the enormous risk of letting Greece exit. The possibility of a massive contagion in such a scenario cannot be ruled out. And so there will be many attempts made by the European nations to prevent a Greece exit. We believe that even though a Greece exit will have serious repercussions, a country that has amassed so much debt on its books should be allowed to default. It will be interesting to see though how the Eurozone chooses to deal with this problem.

04:45
The Indian stock markets were trading firm in the afternoon session, although they had pared substantial gains recorded earlier. At the time of writing, the BSE-Sensex was trading higher by around 22 points. Losses were largely seen in oil and gas and healthcare stocks. As far as global markets are concerned, while Asian indices were trading mixed at the time of writing, the European indices were trading in the green.

04:56
 Today's investing mantra
"You ought to be able to explain why you're taking the job you're taking, why you're making the investment you're making, or whatever it may be. And if it can't stand applying pencil to paper, you'd better think it through some more. And if you can't write an intelligent answer to those questions, don't do it." - Warren Buffett

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Equitymaster requests your view! Post a comment on "Are you interested in buying shares of Flipkart?". Click here!

30 Responses to "Are you interested in buying shares of Flipkart?"

Amitsarkar

Oct 10, 2017

I want purchase flirtkart share

Like 

Amitsarkar

Oct 10, 2017

I want purchase flirtkart share

Like 

Venkatesan

Oct 10, 2017

Am interested to buy a flipkart share

Like (1)

imam basha

Oct 1, 2017

Want to earn from flipcart

Like (1)

ojus

Jul 4, 2017

i wanna buy shares of flilpkart

Like (1)

Kevin

May 25, 2017

Yes! I'd like to buy some share of amazon. please let me know the share amount.

Like (1)

avinash

Apr 17, 2017

want to buy share from flipkart

Like (1)

Dinesh Kumar Pattanayak

Apr 3, 2017

Want to buy flipcart share

Like (1)

UDAY KUMAR

Sep 24, 2016

yes i interest to buy a share in flipkart, so could u please tell me, how much does cost of one share on that? i dont know the value of share, so provide complete details

Like (1)

Abhishek Mishra

Jun 10, 2016

want to buy shares of flipkart.

Like (3)
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Equitymaster requests your view! Post a comment on "Are you interested in buying shares of Flipkart?". Click here!