UBS has significantly reduced adjusted EBITDA estimates for Zomato and Swiggy, reflecting the mounting pressure from intensifying competition in India's quick commerce sector. The investment bank cut Zomato's estimates by 10-18% and Swiggy's by 12-28% for the next two to three fiscal years, marking a substantial downward revision that highlights the challenges both platforms face in their battle for market dominance.

Competitive Pressure Intensifies Margin Challenges

The deterioration in margin outlook stems from notable intensification in competitive pressure that has persisted since September and continues into January. UBS's pricing tracker reveals that discounts have widened significantly across the sector, creating sustained pressure on profitability metrics.

This competitive dynamic reflects the intense battle for market share in India's quick commerce space, where customer acquisition through aggressive pricing has become a standard strategy. Amazon and Zepto have emerged as the most aggressive discounters among online platforms, offering the highest promotional incentives while Blinkit continues to maintain relatively lower discount levels, though still elevated compared to earlier periods.

Margin Recovery Timeline Extended

The most significant impact of UBS's downward revision involves the pushback in when the sector achieves sustainable margin improvement. For Zomato's Blinkit division, UBS now forecasts the quick commerce unit to reach breakeven in FY27, compared to FY26 previously—a critical inflection point that has been delayed by a full fiscal year.

Similarly, for Swiggy's Instamart, the margin trajectory has deteriorated substantially, with adjusted EBITDA margins down 120-130 basis points during FY27-FY30. The margin pressure reflects the reality that despite continued network expansion and category expansion helping to grow the overall addressable market, the sector's profitability improvement remains elusive in the near term.

Price Targets Revised Despite Maintained Buy Ratings

Despite the downward EBITDA revisions, UBS maintained Buy ratings on both stocks, reflecting confidence in their long-term positioning despite near-term margin headwinds. However, price targets were adjusted to reflect the changed margin outlook.

The price target reductions are particularly notable for Swiggy, which faced a steeper markdown of ₹70.00 per share. UBS's analysis suggests that the recent correction, coupled with a still very strong growth profile, keeps the firm positive on the space, indicating that current valuations may already be pricing in some margin pressure.

Valuation Methodology Reflects Conservative Stance

Despite the EBITDA headwinds, UBS's valuation methodology suggests the stocks may present value opportunities. Zomato is valued using a mix of DCF, sum-of-the-parts, and multiple approaches, with Blinkit valued at 40x 2-year forward EBITDA discounted back by a year. Swiggy's quick commerce unit Instamart was repriced to 0.8x 1-year forward GMV, compared to 6x 1-year sales previously, suggesting a more conservative stance on near-term profitability achievement.

UBS's analysis notes that while newer platform entries and category expansion are providing a solid multi-year growth runway, the immediate margin profile has deteriorated meaningfully. This assessment reflects the ongoing reality that quick commerce platforms continue to prioritize market share gains over immediate profitability in India's rapidly evolving e-commerce landscape.

UBS Investment Bank's chief strategist Bhanu Baweja has provided a cautious outlook on India's equity markets, describing the risk-reward prospects as "fine but not stellar" despite the market's 15-month underperformance. In a recent interview, the UK-based strategist outlined his expectations for global markets, precious metals, and emerging market currencies.

Equity Market Outlook: Mediocre Returns Ahead

Baweja expects continued decent returns but anticipates more mediocre performance in 2026 compared to 2025, with returns stalling in 2027. He projects US equity returns of approximately 8-10% for the coming year, emphasizing that this represents a slowing rather than a complete collapse.

The strategist noted that markets will likely consolidate over the next three to four months, with demand impulse expected only after fiscal expansion begins in March.

India-Specific Challenges and Concerns

Regarding India's market position, Baweja expressed reservations about the country's near-term prospects. He cited several factors limiting India's appeal:

• Valuation concerns: Insufficient correction in valuations despite underperformance
• High earnings expectations: Market expectations already quite elevated
• Supply pressure: High volume of new equity issuances
• Limited AI exposure: Lack of meaningful benefits from the artificial intelligence trade
• IT services disruption: Facing risks in the information technology sector

Baweja emphasized that while everything has a price, current valuations make global fund managers less keen to invest aggressively in India. He noted that investors want to see evidence of manufacturing shift from China to India before making significant commitments.

Currency Competitiveness and China Threat

A significant concern highlighted by the UBS strategist relates to currency competitiveness and China's growing influence. Baweja described the rupee as "a very uncompetitive currency, made even more uncompetitive by China's hyper competitiveness."

He warned that China is gaining market share in many emerging markets, including India, very quickly. This development poses a substantial challenge for global investors considering emerging market allocations. The strategist indicated that UBS is currently long China relative to India, though this position could change.

Precious Metals: Continued Upside Expected

Baweja provided a more optimistic outlook for precious metals, particularly gold and silver. He expects gold to gain another 10-15% from current levels, driven by:

• Worsening US fiscal deficit
• Increasing term premium
• Positive risk-reward dynamics

For silver, Baweja noted it could perform even better than gold but cautioned investors to be careful when the gold-to-silver ratio drops close to 65, which historically signals euphoria in precious metals markets.

Federal Reserve and Dollar Outlook

The strategist expects the Federal Reserve to implement two more rate cuts in 2026 and one additional cut in 2027, totaling three more cuts with approximately two-and-a-half cuts currently priced in. However, he emphasized that while Fed rates may be 75 basis points lower over the next 15 months, the 10-year rate will not decline proportionally.

Regarding the US dollar, Baweja expects it to hold its ground over a 12-month perspective. Against certain emerging market currencies, particularly those he considers uncompetitive like the rupee, the dollar could strengthen more than forward markets suggest.

Market Dynamics and Tariff Impact

Addressing recent tariff threats, Baweja noted that tariffs did not significantly impact markets and global trade in 2025, as the US experienced increased imports to front-run the tariffs while companies absorbed margin hits. If tariffs persist, companies will likely gradually pass costs to consumers, leading to modestly higher inflation that could hurt US consumers when real disposable incomes are flat-lining.