Shares of Paytm, or One 97 Communications, saw a significant 20% drop in its stock value, hitting a low of Rs 650 on December 7, before settling at Rs 661 on the National Stock Exchange (NSE). This plunge marks another challenging phase since its November 2021 listing, where the stock plummeted from an issue price of Rs 2,150 to Rs 472 within a year.
The trigger for this decline is Paytm's announcement to scale back its small-ticket loan portfolio. This decision follows the Reserve Bank of India's (RBI) move to increase risk weights in unsecured lending, notably for loans under Rs 50,000 – a segment that forms a substantial part of Paytm's loan portfolio.
Paytm's Strategic Shift in Lending
In a strategic shift, Paytm aims to slash its small-ticket, buy-now-pay-later (BNPL) loans, a category that represented 56% of its loan disbursements in the second quarter of fiscal year 2024. The company is now focusing on limiting loans under Rs 50,000, in line with RBI's recent guidelines. This move is aimed at enhancing its underwriting process and maintaining asset quality.
Reasons Behind the Drastic Fall in Stock Price
Paytm's pivot from payments to lending had previously revived its stock performance. Although Paytm is hopeful about offsetting these impacts by expanding into larger loan amounts, this shift, however, presents a substantial challenge as the high-value loan market is already dominated by established competitors.
Given that Paytm's lending operations heavily rely on the growth strategies of banks and non-banking financial companies (NBFCs), there's a possibility of a deceleration in loan distribution and a reduction in the fees earned from these partners.
With these recent developments, Paytm's lending sector, which is vital for its profit margins and market valuation, is facing increased scrutiny.
Is it the Right Time to Invest?
With Paytm's share price now hovering around Rs 660, a significant drop from its IPO price of Rs 2,150, investors are debating if it's the opportune moment for investment. Although the valuation appears more attractive, various factors, such as competitive and regulatory pressures, may obstruct a substantial price rebound.
Further, potential stake sales by major investors like Softbank and Ant Financial and the inclusion in the MSCI index are additional factors for investors to consider.
As Paytm navigates through these changes, investors must weigh the risks and opportunities presented by the company's strategic shift.
Unsure whether to buy, hold, or sell PayTm? Ask LiMo, India’s first-ever AI copilot for stock investing that provides both a judgement and the reasoning behind it.
For an in-depth grasp of the financial markets and potential investment avenues, delve deeper with Liquide. Boasting advanced tools like LiMo and thorough market insights, Liquide equips you with the knowledge to make informed investment decisions. Download the Liquide app now from the Google Play Store or Apple Appstore and embark on a journey of informed and successful investing. Don't miss out on the tools that can shape your financial future.