Paytm shares jumped over 2 per cent on Wednesday to Rs 488 on NSE, recovering slightly after it slumped to an all-time low in the previous session after analysts at Macquarie termed the upstart Jio Financial Services (JFS) to be a potential threat for the payments services provider. The fintech Paytm shares crashed over 10 percent on the BSE to hit a record low of Rs 476.65. The stock has been on a downward journey for a while. The slump was accelerated last week when Softbank dumped 29 million shares of Paytm parent One97 Communications through a block deal to raise about Rs 1,631 crore. In the last one week, Paytm stock has tanked over 12 per cent. The share price has plummeted 64 per cent so far this year.
What dragged Paytm stock?
Billionaire Mukesh Ambani-led Reliance Industries (RIL) recently made an announcement to demerge its financial services business and rename it Jio Financial Services (JFS). The company could be the fifth-largest financial services company in India in terms of net worth. The scale of RIL’s retail operations and its deep pockets could mean stiff competition for Paytm, which is struggling to become profitable. “While it is too early to understand the exact customer segments and target markets that Jio Financial plans to cater to, it seems clear that it will be focused on consumer and merchant lending, which is the mainstay of NBFCs like Bajaj Finance and fintechs like Paytm,” said Suresh Ganapathy, analyst at Macquarie Capital Securities (India).
Meanwhile, heavy supply of Paytm shares from institutional investors has also been a major drag for the stock price. SVF India Holdings (Cayman) offloaded 2.93 crore shares in Paytm at an average price of Rs 555.67 per share, which are worth Rs 1,630.89 crore. In the same bulk transaction last week, BofA Securities Europe SA acquired 50.26 lakh shares in the Paytm operator, Morgan Stanley Asia Singapore PTE bought 60.03 lakh shares, and Societe Generale – ODI purchased 70.85 lakh shares through open market transactions. They bought these shares at an average price of Rs 555 per unit and their total buying price stood at Rs 1,005 crore.
What should investors do?
Analysts are largely divided on Paytm shares despite the massive fall in price from all-time high. Sumeet Kariwala, Equity Analyst at Morgan Stanley, has an ‘equal weight’ rating on the stock with a target price of Rs 785. Yes Securities also has a ‘neutral’ rating. Meanwhile, Citi Research raised its target price on the stock to Rs 1,055. International brokerage JP Morgan is also ‘overweight’ on Paytm stock as it sees good reasons for the business to break even. It has set a target price of Rs 1,100, up from Rs 1,000 earlier.
“Shares price of Paytm tanked over 10 per cent to hit the fresh 52-week low of 474.30 a piece on Tuesday. The stock continues its losing streak after the lock-in period for Paytm’s pre-IPO investors ended. Brokerage Macquarie stated in a study that Paytm and other fintech business models could be at risk from Jio Financial Services. So in the near term the stock prices may remain under pressure and the down-side movement is expected to continue. At the current juncture, the stock is sustaining below the key support level so it is recommended not to make fresh entry at this level,” said Akhilesh Jat, Category Manager – Equity Research, CapitalVia Global Research.
Ravi Singh, Vice President and Head of Research, Share India Securities said, “Paytm share price may continue its selling spree amid continuous dumping of shareholdings by large funds. This selling pressure by pre-IPO investors may not stop soon and may further drag the stock to touch the levels of 450 in coming trading sessions.”
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