InvestorQ : Why has Zomato been seeing buying in the last few days, despite the big block sale by Uber Holdings?
Arti Chavan made post

Why has Zomato been seeing buying in the last few days, despite the big block sale by Uber Holdings?

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Rutuja Nigam answered.
1 month ago
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In fact, when the block sale by Uber Holdings was done at a tad above Rs50 per share the general expectation was that the stock price would fall sharply. However, the selling was absorbed with big institutional names like Fidelity and ICICI Pru Life Insurance chipping in with their buy orders. Post the deal, the stock of Zomato has already rallied more than 10% and that shows a lot of inherent strength in the stock. However, what is driving the stock up is something entirely different and it has to do with global index level allocations.

There is likely to be a sharp increase in weightings of Zomato in the FTSE (Financial Times) indices following the slew of share sales done by pre-initial public offering investors. This also included Tiger Global, apart from Uber Holdings, which had exited its entire 7.8% stake. Normally, since these indices are float weighted, FTSE has announced that post the share sales by the early investors, the investability weight for Zomato will be enhanced from the current 17.12% to 24.9% in the FTSE All-World Index. This will be effective from August 11.

How does this impact the price of Zomato. Accoring to estimates put out by Zomato, this enhancement in investabiliyt weightage of Zomato will result in buying of around 20 million Zomato shares by funds tracking FTSE indices. Normally, passive funds do not take stock specific calls but just peg their portfolios to an underlying index. Obviously, when the weightage of the stock is increased in a particular stock, it leads to more buying to raligh the weights. Thus the sale by Moore Strategic Ventures, Uber, and Tiger Global may be positive.

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