Retail investors who have bought unprecedented amounts of shares in Paytm’s parent One97 Communications Ltd have seen over 35% of their value wiped out in just two trading sessions. Further losses may occur if the stock falls to Rs 1,200 from Monday’s closing price of Rs 1,359.6 estimated by Macquarie Group Ltd.
Gopal Agarwal, Managing Director and Co-Head of Investment Banking, Edelweiss Financial Services Ltd, said, “This event will in a way motivate people to be cautious and not take the market for blind bets.” The story and prospects of the company are well understood by the investors.”
India’s equity markets have been on a tear this year, with a central bank slashing interest rates to a record low and millions of new individual investors seeking higher returns in riskier assets. The rally has encouraged at least half a dozen technology startups to seek public listings, including SoftBank Group Corp-backed OYO Hotels & Homes and logistics provider. Delhivery Pvt,
Agarwal said at least some IPO prospects that were “on the periphery” and looking to profit from the flood of transactions may now rethink the timing and pricing of their issues. The Economic Times on Tuesday, citing sources, said MobiKwik may delay its IPO by a few months because of lackluster investor demand and a 30%-40% drop in valuations.
Firms from South Asian countries have raised around $15 billion through IPOs this year, which is already an annual record for total earnings. Critics are questioning the valuation of some of these IPOs as they are still loss-making companies.
ipo boom
Ashutosh Sharma, vice president and research director, Forrester Research Inc., said, “The pandemic has led to a large amount of technology adoption in the country, which has cost many technology companies the valuations.” Is this the beginning of fall? I don’t. do not know. But in the future, investors will look carefully at the risks and business future of tech companies.”
Valuation of Paytm at around 26 times the estimated price-to-sales for FY2023 is costly, especially when profitability remains elusive over the long term, said Suresh Ganapathy and Param Subramanian Macquarie Capital Securities (India) Pvt. Wrote in one of the few research reports covering the possibilities of Paytm. He added that most fintech players globally trade around 0.3-0.5 times the price-to-sales growth ratio.
What Bloomberg Intelligence Says:
“Domestic mutual-fund inflows of $1.2 billion in October and record-high participation through systematic investment plans underscore the structural trend of shifting India’s savings into equities. In contrast, FII sales totaled $2.3 billion in October. The outflow has gained momentum, which is the highest monthly outflow since the start of the pandemic.”
– Analysts Gaurav Patankar and Nitin Chanduka wrote in a note published on Tuesday
Paytm’s large IPO size also restricted the demand, which could bode well for smaller potential IPOs. Food delivery app Zomato Ltd. And beauty startup Nykaa — both smaller than Paytm’s offering — has seen its shares rise by more than 80% since its IPO.
Edelweiss’s Agarwal suggests pricing share sales “leave something on the table for investors.”
“If an issue price can move 10% higher or lower, it would be advisable to go with the lower price, which provides a lot of upside in terms of trading,” he said.
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