Paytm IPO overpriced, stock may correct; muted listing expected, book gain or loss and exit | Interview

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Updated: November 18, 2021 7:57 AM

Paytm stock is staring at a muted listing today after India’s largest IPO to date. Paytm’s public issue got a decent 1.89 times subscription, but grey market premium has vanished since then

paytm IPO, paytm stockAt about 45x sales, and a market capitalisation of Rs 1.4 lakh crore, Paytm stock is not cheap

Paytm stock is staring at a muted listing today after India’s largest IPO to date. Paytm’s Rs 18,300-crore public issue got a decent 1.89 times subscription, but grey market premium has vanished since then, amid concerns of overvaluation. At about 45x sales, and a market capitalisation of Rs 1.4 lakh crore, Paytm stock is not cheap, especially considering that the company has never turned a net profit, and is not likely to do so soon, hedge fund manager Anurag Singh, Founder, Ansid Capital Partners tells Financial Express Online’s Shaleen Agrawal. Anurag Singh advises IPO allottees to book listing gains, or losses, and exit the stock. Here are edited excerpts from the interview.

Also read: Paytm shares list today; analysts expect muted listing as grey market premium dries up, should you buy, sell?

What is your outlook for Paytm share price?

There is a supply constraint on Paytm shares, which may help the share price hold for some time. With 10% equity offer, and three-fourths of that with institutional investors, there is very little of Paytm stock with retail investors. There will be too much scrambling for too few shares. However, the real price discovery for Paytm shares will happen once the lock-in period for promoters ends, and when institutional investors look to trim or exit their holdings.

What should Paytm IPO allottees do with their shares after listing today? Hold or sell?

There is a high probability that Paytm stock may list at a discount. If investors get a listing pop, I would advise them to move out with whatever little gains they get. Even if it lists at a discount, they should exit the stock.

Could Paytm, and other new shares such as Policybazaar and Zomato make it into headline indices such NSE Nifty 50?

Yes, of course. Based on market capitalization, these companies would surely be in the top 50 or 100 firms. The indices will have to account for that in the next revisions. If the collective market forces have decided stock price and company’s market cap, then the index will have to follow suit. Meanwhile, with the huge SIP money coming into mutual funds every month, the fund managers would not sit on the sidelines for too long, and would buy into such stocks. It’s difficult for fund managers to be contrarian.

Can retail investors expect to ride on the back of institutional investors buying and/or holding the stock?

Even if there’s not a price correction, there could be a time correction on Paytm stock. Institutional investors can gradually offload shares, so as not to spook the price. Often, institutions exit the stock on their own schedule, and then the retail investors are left holding the bag. My advice for retail investors would be to not try to oversmart large institutional investors.

Is Paytm share fairly valued? What should be its fair value in your assessment?

No, Paytm stock is very expensive. At 20% of HDFC Bank, 40% of Kotak Bank, I think Paytm stock is overpriced. I would go back to Paytm’s last major funding round before the pandemic, which is when the company raised money at $8 billion valuation in the year 2017, instead of about $19 billion now. It’s the same for Policybazaar, where I think the company’s fair value is at about 25% of the current price, going by its 2018 funding.

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