When to expect buying interest in Paytm, what's attracting investors, promoters towards new edge businesses? Expert explains

Paytm stocks corrected over 30 per cent from its issue price of Rs 2,150 per share as the stocks declined nearly 20 per cent on Monday, the second day of its trading post tepid debut.

"The biggest strength for Paytm is its massive customer base along with strong brand positioning, however, there is no clear moat with low entry barrier businesses." Source: Reuters

Paytm stocks corrected over 30 per cent from its issue price of Rs 2,150 per share as the stocks declined nearly 20 per cent on Monday, the second day of its trading post tepid debut. Shares of Paytm fell as much as 18.16% or Rs 284.00 to Rs 1280.15 around 1 pm on Monday despite positive Q2 data.

At 2.50 pm, Paytm shares were trading with 12% or Rs 188 to 1376.10 per share on BSE. The stock was trading lower by Rs 241.15 (-15.42% or to Rs 1323) around the same time on the second day after being listed on the bourses on Thursday.

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Talking about Paytm's short journey at exchanges, Santosh Meena, Head of Research, Swastika Investment Ltd, said Paytm is continuing its southward journey after listing on the back of liquidation by retail investors who were betting for listing gain. However, there is a lock-in period of 30 days for anchor investors. "If we talk about the future outlook, then it is still erratic because the market is not clear about its core business and timing of profitability," he said.

Paytm disrupted the payment industry post demonetization, but it got disrupted by UPI, he said. "The biggest strength for Paytm is its massive customer base along with strong brand positioning, however, there is no clear moat with low entry barrier businesses. The market will watch how Paytm will use its strengths to enter into new businesses or create a moat, and if it manages to emerge as a leader in a particular business then we can expect buying interest from lower levels, otherwise it may take many years to reach its peak valuations," Said the market expert.

Digital economy growth, US, China success are attracting investors towards new age business, said Meena. "We know that the Digital economy is witnessing exponential growth across the globe where India is in a leading position. The startup ecosystem is changing in India and many people think that India has the potential to produce big tech companies like what the US and China did in the past," he said.

This is why there is a frenzy for new edge businesses IPO in India, said Swastika Investmart Head of Research. "Most of the promotors want to cash out this euphoria with unrealistic valuations, but in reality, only 1 or 2 companies will survive and create wealth for the investors, while others will be wealth destroyers," he underlined.

We can take an example of the US market, where many companies tried to cash out tech boom along with Google and Microsoft, but most of them failed to continue with their businesses and it even took many years for Google and Microsoft to reach their peak valuations of the time of tech boom, says Meena.

He observes that Paytm came out with exorbitant valuations, where it was asking a market cap of 1.4 lakh crore against the revenue of 3,000crore, while Bajaj finserv, which is an already listed fintech company, with a proven track record of continuous profit and growth is trading at a market cap of 2.9 lakh crore against revenue of 63000 crore.

"I still have the same view that only very aggressive investors should stay invested in the company, while others should look at exit opportunities at any pullback. There is no apple-to-apple comparison for Paytm, but there are better-listed fintech companies that are available with reasonable valuations with a certainty of growth," said the market expert.

India's largest initial public offer (IPO) so far, Paytm, made a tepid debut and was listed on the BSE at a 9% discount to Rs 1,955 per share against its issue price of Rs 2,150 on Thursday. This was a decline of 9.07% or Rs 195. This was in line with the anticipation of the street.

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