Shares of Billionbrains Garage Ventures Ltd., the operator of India’s largest online broker Groww, fell nearly 10% for a second straight trading session indicating that profit-booking on the stock is still on.
On Thursday, Groww’s share price fell as much as 9.09% to ₹154.48 even as the benchmark Sensex gained 0.2% at the opening bell. The stock pared some losses to trade 5-7% lower.
After a spectacular post-listing rally that saw Groww’s share price surge over 90% from its IPO price, the high-flying stock hit a decisive 10% lower circuit on Wednesday, signaling the first major wave of profit booking and revaluation of its aggressive valuation.
Why is Groww share falling?
Groww’s shares, which had listed at a premium, sprinted past major valuation milestones, riding on its strong brand recall among India’s growing cohort of retail investors and its demonstrated profitability. The company even crossed the ₹1 lakh crore market capitalisation mark in record time, an achievement that made headlines.
The rally, however, was not purely driven by fundamentals. A critical factor was the stock’s low free float—a small number of shares available for regular public trading. This tight supply, combined with massive demand, created a technical trap for short-sellers.
“Groww has only about 7% free float, which makes it extremely volatile,” Ishan Tanna, research analyst at Ashika Institutional Equity Research, told ET. “Many traders who tried to short-sell or engage in Buy Today, Sell Tomorrow (BTST) trades got caught out.”
The Groww Valuation Correction
As the stock continued its upward trajectory, the whispers of overstretched valuations grew into a chorus among market veterans. Analysts quickly pointed out that the price run had significantly outpaced that of its listed peers in the broking sector, such as Angel One Ltd. and Motilal Oswal Financial Services Ltd.
“The current valuations seem to fully capture the short-term growth prospects. Investors should watch out for a couple of quarterly earnings before making further investment decisions,” Kranthi Bathini, director of equity strategy at WealthMills Securities, told Reuters on the day of Groww’s listing.
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But while Groww’s implied price-to-earnings multiple—which indicates how much investors are willing to pay for every rupee earned—was estimated to be elevated even before the IPO, the post-listing surge pushed its effective valuation multiples far higher.