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MFs to benefit from e-commerce boom
You love shopping online and are convinced it is the next big growth story. You want to invest in shares of e- commerce companies. After the big listing by Chinese e- commerce firm Alibaba, you don't want to be left out. Yet, is the Indian e- commerce sector a true growth story or a bubble? Should you invest in it? The two e- commerce companies listed in India are Just Dial and Info Edge. In the latter, which runs websites such as Naukri. com, the share price is ₹ 851.65 and the trailing price to earnings ratio ( PE) is 94.91. In the case of Just Dial, the price is ₹ 1,632.45 and the PE is 73.64. These are benchmarked against the BSE 200, where the PE is 19.
These stocks, though not solely of e- commerce, are overvalued. It is critical to know when to exit. Hence, it is not advisable for retail investors to enter these directly; investing through a mutual fund ( MF) is better.
Purely e- commerce companies such as Flipkart and Snapdeal are not listed but have had huge funding. Even if their revenue models do not substantiate the valuations, the growth in e- commerce companies have been 40- 50 per cent quarter- on- quarter. Even if the growth slows, the valuations are still good. With internet accessibility going up manifold, brands are being created and built online. So, e- commerce is not a bubble. However the e- commerce sector in India has not reached the scale of companies such as Alibaba. The return on equity of the investments is still a question. There are no comparable peers. It seems like a bubble, going by the valuations now. I will not advise investing in the sector.
Then, how about investing in shares of companies that will benefit from the growth of the e- commerce sector, such as logistics and packaging companies? MFs have been buying stocks such as those of Gati, Blue Dart and Gateway Distriparks, which have delivery tieups with leading e- commerce entities. Packaging companies such as TCPL and Manjushree Technopak have come on their radar.
Blue Dart Express is currently trading at ₹ 5,263.05 and the PE is 124.58. Gati is at ₹ 176.95 and the PE is 44.22.
Since there is no way for retail investors to tap into e- commerce ventures, investing in companies that will indirectly benefit from the sector is an option. Going through MFs is better than investing directly.
Logistics is not a very deep or core sector. These stocks are overvalued and, therefore, one should not adopt a buy and hold strategy. Since the benefit for logistics and packaging companies is derived from e- commerce, it is more complex for retail investors to understand. It is a sectoral call. The gains are more from an alpha generation or weightage point of view. So, a fund can increase the exposure to these stocks within its overall portfolio and get the benefit. Note, however, that MFs are trading platforms -- they cash into whichever stock is in flavour, and buy and sell. So, retail investors must not get taken in by only what they buy
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