Rs 10,200 Crore Food Frenzy! Zomato Becomes Mutual Funds’ Top Pick in Q3!
Zomato: With the rise of quick commerce in major cities, mutual funds have reportedly invested Rs 10,200 crore in purchasing Zomato shares over the past three months, making it the most popular stock in the December quarter.
In just the last month, mutual funds spent approximately Rs 24,000 crore to acquire 145 crore shares of Zomato. During the December quarter, mutual fund ownership of Sensex stocks increased by 285 basis points, rising from 13.57% to 16.42%.
In Q3, the number of mutual fund schemes investing in Zomato increased from 36 to 38. Key investors include Nippon India Growth Fund, UTI Flexi Cap Fund, Axis Bluechip Fund, Kotak Flexicap Fund, and ICICI Prudential Balanced Advantage Fund.
On the other hand, foreign investors do not seem as enthusiastic about Zomato, as Foreign Institutional Investors (FIIs) have reduced their holdings from 52.53% to 47.31% on a quarter-on-quarter basis.
Recently, Jefferies global equity strategist Chris Wood reduced his stake in Zomato by one percentage point, citing increased competition as a near-term risk. The brokerage firm downgraded the stock to a hold rating and lowered the target price from Rs 335 to Rs 275. Despite Zomato’s strong long-term potential, concerns about rising competition and potential profitability challenges remain.
As Zomato’s quick commerce platform Blinkit faces competition from Zepto, Flipkart Minutes, and BigBasket, analysts anticipate growth in Q3 but expect some impact on short-term margins due to increased competition and discounting strategies.
Blinkit has already set a goal to double its store count by 2024-26. Recent reports suggest that Amazon is preparing to launch Amazon Tez, while Reliance Retail is exploring a faster delivery option with a 30-minute timeframe.
The potential impact on industry profitability is a major concern, as companies like Flipkart, Amazon, and Reliance have significant resources and may feel pressured to defend their market share, according to Maheshwari.
Despite the challenges of quick commerce, ICICI Securities believes that both Swiggy and Zomato are positioned to outperform the market in 2025 due to their nationwide expansion and competitive strategies.
Of the two, Swiggy is preferred at its current valuation, with a projected 46% increase compared to Zomato’s 27%. Survey data indicates a growing preference for Swiggy among restaurant partners, and the company’s successful execution of initiatives like Swiggy BOLT and Swiggy BLCK further support this outlook.
The brokerage has set a target price of Rs 740 for Swiggy and Rs 310 for Zomato.
Karan Taurani of Elara Capitals predicts that Blinkit will maintain its industry-leading position by offering higher average order values, a wider range of products, and better take rates. Despite the recent success of Swiggy’s Instamart, Blinkit is expected to hold its ground and not lose market share.
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Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Investors should conduct thorough research and consult with a qualified financial advisor before making any investment decisions.