Friday, 15 May 2015

Brokerages wake up to e-commerce boom

As the Indian e-commerce story begins to play out and the hunt is on to find India's next Alibaba, brokerage houses are quickly doing a mid-course correction and rushing to cover e-commerce stocks such as Just Dial and Info Edge.
Foreign brokerages such as Goldman Sachs, CLSA, Credit Suisse, HSBC, JPMorgan and UBS have all started tracking these stocks, as they sense the potential of the e-commerce space, and its big-bang impact on Dalal Street. 

Sample this: Last July, only three brokerage houses were covering Just Dial, which has jumped to 23 at present, even as the stock has surged nearly three times since its listing in June 2013. Similarly, Info Edge is currently tracked by 24 brokerage houses, against 16 in July last, while the stock has jumped 120% in one year, according to Bloomberg data. 

"The e-commerce space is the next big emerging theme in the markets, and brokerage houses don't want to miss the bus. We expect many success stories to unfold in the listed space, and currently we are at the beginning of an e-commerce boom," Kunj Bansal, ED and chief investment officer at Centrum Wealth Management, said. 

Analysts believe that in the e-commerce space, there are multiple enablers for explosive growth, including a rapidly growing number of internet users, steady rise in the proportion of online shoppers within the internet community, growth in the per-shopper transaction value, and continuous flow of capital investments, making these firms attractive bets. 

"The money which has been raised by Flipkart and Snapdeal has grabbed everybody's attention. The trend of online shopping by Indian retailers hold great promise in the e-commerce space," said Dipen Shah, head, private client group research, Kotak Securities. 

Online shopping in India of physical goods is estimated to reach around $4 billion in 2014, and will multiply by over 11 times to hit $45 billion by 2020, according to MOSL report. "We have initiated coverage on Info Edge with a buy rating and Rs 1,100, as we see the comprice target of company in direct and high-quality play on the exploding e-commerce opportunity," said Rajat Rajgarhia, managing director, institutional equities at Motilal Oswal Securities. 

One of the reasons why brokerages are gung-ho is India's growing internet population, which is estimated to grow to 400 million by 2016, making it the second largest in the world. 

"On Just Dial, we have a buy recommendation with a target price of Rs 1,800, as the company is the leader in local search engines with a strong e-commerce presence, which is a winning formula," Rajgarhia added.

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