Why Nykaa, Zomato & Paytm trade at sky-high PE ratios despite weak profits
India’s tech IPO stars crashed 70–80% from highs, but investors refuse to give up. What drives faith in businesses with thin profits and four-digit PE ratios—and how should investors approach them?
New-age tech companies have become synonymous with fast growth —and sky-high valuations. Their IPOs arrived with glossy pitches and investor enthusiasm that had little to do with profits. As long as the growth story was hot, investors believed the riches would follow.
These companies do have solid long-term potential. Their platforms are widely used, and their IPOs were heavily oversubscribed. But many investors who didn’t exit early, faced steep losses as euphoria died down.
Still, the bull case hasn’t disappeared. Retail investors continue to bet that these brands will emerge as India’s next multibagger giants.
Also read: India’s IPO wave is just getting started: The big 2026 listings to watch
So what explains this enduring belief—despite the setbacks? And how should investors approach these stocks today?
The big declines
Nykaa, Zomato, and Paytm became the poster names of India’s new-age tech boom—with Urban Company joining the list recently.
At their 2020–21 peak, these stocks were market favourites, widely owned by retail investors.
But the tide turned quickly: Zomato and Nykaa each slumped around 70% from their highs, while Paytm plunged 80%.
Although they’ve bounced back from the bottom, profitability remains weak—leading to sky-high valuations.
Zomato now trades at a PE of about 1,550 and Nykaa at 740, while Paytm is still loss-making. Urban Company’s PE also touched nearly 1,000 recently (excluding tax credits).
To put that in context, traditional value investors consider a PE of 30 expensive.
As Equitymaster’s co-head of research Rahul Shah wrote about the valuations of Urban Company, “Imagine paying nearly a thousand years' worth of a company's current profits upfront. For a business that has historically struggled to achieve consistent profitability, this isn't just optimism; it's a bet on a distant, almost mythical future."
Yet, investors remain invested
Despite the painful corrections, investor interest has bounced back. Stock prices of Zomato, Nykaa and Paytm have all trended upward again—even though valuations remain sky high.
Also read: Keep it real: IPOs are roaring but finance mustn’t outrun the real economy
The following charts makes it clear that the stocks of Zomato, Nykaa, and Paytm have all trended up after the crash.
Zomato Share Price – Since Listing
Nykaa Share Price – Since Listing
Paytm Share Price – Since Listing
So, what explains the investor bullishness?
FOMO: Fear of missing out
The fear of missing out is strong in these stocks, especially among retail investors. These stocks are often hyped as big growth stories or the ‘next best thing’ in the market.
Even one good quarterly result can paint the company in a positive light, making investors believe that the growth story is turning into high gear.
These stocks have been billed as ‘growth stocks’ even before their IPOs. Thus, if investors see the potential of sustained growth, they are tempted to buy.
Younger investors are particularly affected by this as they tend be users of these platforms and are more familiar with the business models.
Speculation and momentum
Rising prices attract short-term traders looking to ride the uptrend. When more people buy simply because others are buying, momentum builds on itself—pushing valuations further away from fundamentals.
In financial language, this is called surfing the price momentum. The ‘extra’ buying of these short-term traders adds to the upward price momentum.
Traders feel they are missing out on some easy, short-term profits. The thinking goes, 'If others are making easy money, why shouldn’t I?'
Genuine long-term conviction
These stocks are being driven higher mostly by short-term traders but they do have a devoted set of long-term investors.
Some of these investors bought when these stocks fell sharply from their highs. These investors are currently sitting of good profits. Thus, they do not have an incentive to sell quickly. They are happy to hold on as long as the price trend remains upward.
These investors are true believers in new age business. They think these companies have changed the Indian economy permanently and will continue to do so. This will result is enormous wealth creation in the long-term for shareholders.
Also read: Why India's IPO market is seeing a dramatic last-minute bidding frenzy
They point cases like Amazon in the US which hardly made any profits for a long time but eventually became a trillion dollar company.
In the minds of these investors, a 4-digit PE ratio is not a concern because the current high valuations will be completely dwarfed by the profits made in the future.
Only time will tell if they are proved right.
So… should you invest?
Each investor has their own style — but it’s important to remember what a PE ratio represents. A PE of 20 means it would take 20 years for a company to repay its share price if earnings stayed flat. The higher the PE, the longer the wait—unless profits grow rapidly.
These stocks rely heavily on expectations of sharp profit growth in the future. Add herd psychology and FOMO into the mix, and it’s clear why the rally continues—even without proven earnings strength.
Ultimately, stock prices follow profit growth.
That will decide the fate of India’s new-age tech stars too.
So investors must look beyond the hype and assess business fundamentals, governance, and valuation before taking the plunge.
Happy investing.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
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