In the mutual fund space, internet related stocks have witnessed heightened activity in the last one year. Firstly, two indices have been launched: BSE Internet Economy Index launched in October 2024 and NSE’s India Internet Index in April 2025. This was followed by index fund launches starting with Edelweiss’ BSE Internet Economy Index Fund launched in May 2025. Two more were launched in the last week: Mirae’s Nifty India Internet ETF that closes on June 25 and Groww’s Nifty India Internet Index ETF that closes on June 27.
Here, we look at the sector composition, underlying drivers and how investors should approach the segment.
Sector composition
The indices floated by BSE and NSE are composed of 20 stocks ‘that conduct business largely through online platforms’ and are dependent on internet for operations. While BSE index will pick stocks from BSE-500, the NSE index will rely on Nifty Total Market Index which is composed of top 750 stocks by market capitalisation to populate the index.
Eternal (formerly Zomato) leads by weight in both the indices with weights of 20.2/14.5 per cent in NSE/BSE as on May 2025. But the BSE index includes Bharti Airtel also with a weight of 14.1 per cent. Globally, telecom and tech sectors are clubbed, but with tech valuations ballooning, telecom is seemingly left out. The other holdings are as shown in the table.
Sector drivers
Investors should appreciate the primary driver of the segment: adoption and increasing penetration of online platforms. Most of the companies in the sector are into distribution but through online mode. Zomato, Swiggy in food and grocery distribution, PB Fintech in insurance, One 97, Angel One and MOFSL in banking and financial services, Info Edge in classifieds, and CAMS in investor registrar services. The product or service being distributed is fundamental, but the channel of distribution is turning digital. So, the primary sector driver is platform adoption and penetration starting from a low base. Eternal and PB Fintech reported revenue growth of 66 and 44 per cent year-on-year in FY25 as an increase in penetration from a very low base fuels such high growth rates.
Being in consumer-facing operations, the segment shares consumption growth as the driver that is common to most other sectors; FMCG to financial services. Internet economy gains twice as fast as it is increasing penetration in consumer spending, which itself is expanding and expected to sustain the high growth rate. In reality, though, consumer spending is slowing in urban and recuperating in rural areas; alongside, lack of real wage growth is an overhang on this revenue driver. The hopes are pinned on increased spending post income tax cuts this budget, improved monsoon outlook and low base of rural consumption.
Investor relevance
Investors eyeing the segment should consider the three headwinds: valuations, survivability, and profitability. The two indices have reported a trailing PE multiple of 108 (Nifty index) and 71 (BSE index). Investors entering at such multiples have to expect high double digit growth for long periods. While the companies have delivered high growth which analysts expect to sustain, investors do not have a margin of error at such elevated price points.
The lower profitability is also a factor in high multiples with few of the companies’ either reporting losses till recently or only now reporting a thin margin of profitability. But as most are pioneers in their respective field of operations, a stable level of profitability is still speculative. Lower on degree but still speculative is the survivability of companies. This arises not because of any internal weakness of companies but owing to the fact that disruption is a mainstay of this segment. In fact, most of the companies in the segment are disruptors of earlier technologies.
Survivability and profitability are addressed by index investing. By holding the bunch, instead of a concentrated bet on any one, investors can improve their chances of holding the survivor and one with leading profitability.
Investors with a high risk appetite may consider a modest exposure to the segment, despite the valuation headwinds. The sector can gain from increasing internet penetration, digital banking access, per capital income and spending growth in the country. The index approach allows lower-cost exposure to the various platforms through a single investment eliminating company-specific risks. Technology-focused sectoral funds do give some exposure to Internet economy stocks, but top-performing actively managed schemes (direct plans) come with 60-100 bps expense ratios.
Published on June 21, 2025