Most new-age stocks like Zomato, Paytm, and Policybazaar do not have credible business models and basically, most of them are ponzi schemes and more than half of them will disappear in the next five years, said Saurabh Mukherjea, Founder, Marcellus Investment Managers, in an interview with The Economic Times (ET).
"We have nothing against new-age or old age. We just look for companies with clean accounts, good capital allocation and strong franchises. Most of them do not have credible business models and basically, most of them are ponzi schemes where a group of investors pass the parcel among themselves and keep marking to market these positions," Mukherjea told ET.
"The businesses do not have credible business models and my reckoning is that in the next five years, 70% of them will disappear," he added.
A Ponzi scheme is an unlawful and fraudulent investment scheme that guarantees rapid, simple, large returns on investments with little to no risk.
It is a specific kind of pyramid scheme in which the owner buys a small number of investors at the top of the pyramid who are initially given fantastic investment returns using money obtained from the second group of investors.
Some of the new-age stocks have been the top wealth destroyers in the current year amid market uncertainty. As most of them are loss-making, Mukherjea said one simple proof of a strong franchise is profitability.
"Right now, one simple proof of a strong franchise is profitability. I am not even saying show me the cash flow. I am saying boss profit bana ke dekaho (Please, show me some profit). I am not even saying make a profit at a consolidated level. I am saying product level pe profit bana ke dekhao (be profitable at the product level) and these guys do not have it," Mukherjea told ET.
"We are never going to invest in a company which is not a dominant franchise. Profit or loss is, in a way, a manifestation of dominance. Our job is to look for dominant franchises," he added.
Disclaimer: This article is based on an ET interview. The views and recommendations made above are those of the analyst and not of MintGenie.