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 listing, including SoftBank Group Corp-backed Oyo Hotels & Homes and logistics provider Delhivery Pvt.
at least some IPO Agarwal said prospects who have been “on the periphery” and looking to profit from the flood of transactions may now reconsider the timing and pricing of their issues.
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.
Ashutosh Sharma, vice president and director of research, Forrester Research Inc., said, “The pandemic has led to huge technology adoption in the country, which has cost many technology companies the valuations.” “Is this the start of a downtrend? I don’t know. But in the future, investors will look carefully at the risk and business future of tech companies.”
Paytm’s valuation is expensive at around 26 times the estimated price-to-sales for FY2023, especially when profitability remains elusive in the long run, say Suresh Ganapathy and Param Subramaniam of Macquarie Capital Securities (India) Pvt Ltd. 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.
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 huge upside in terms of trading,” he said.