Small investors raised stakes sharply in Paytm in Q3. Then came RBI’s curbs

Retail investors sharply hiked their stake in Paytm to 12.85% during the December quarter from 8.28% in the preceding three months. Market experts believe that in the absence of clarity on the fate of the payment bank’s operations, the near-term outlook for the company remains bleak.

Many new retail investors hopped on to the counter in the hope of reaping high returns. This is borne out by the number of retail investors holding up to ₹2 lakh each of the firm’s equity capital jumping to 1.1 million in Q3 from 990,819 in the preceding quarter.

A year ago, in December 2022, small investors’ holding was lower at 9.24%. The recent fall in share price would thus have come as a rude shock to the new and existing investors .

The Paytm share plummeted 45% to ₹419.85 apiece on Friday from ₹761.20 on 31 January, over just seven trading sessions, after RBI stopped most operations of the payments bank. 

The stock hit the lower circuit for three consecutive sessions post the regulatory action. After two sessions of hitting the 20% lower circuit, exchanges halved the circuit limit, which was tested on the third session.

Corporate governance advisory professional and brokers said that though financial services firm Morgan Stanley purchased five million shares of One97 on 2 February for ₹243.6 crore in a bulk deal on behalf of offshore entities who aren’t registered in India, retail investors shouldn’t raise their stake or enter the counter at lower levels pending the uncertainty over the firm’s business.

“Investors have to assess the extent to which their investment thesis has changed and the impact to the core business of Paytm,” said Shriram Subramanian, founder and managing director, InGovern Research. “Also, there will be some near-term uncertainty, though the management is showing confidence in the business.”

Asked whether existing investors could benefit from a potential takeover of the payments banking operations, he added, “It is better to wait and watch till there is clarity on the overall impact. Takeover is unlikely as there seem to be some RBI restrictions on takeover.”

The advice comes in the wake of heavy delivery volumes witnessed in three sessions after the RBI action, with almost 100% of traded stocks on NSE changing hands and a slew of brokerage downgrades. 

For instance, Axis Capital and JM Financial have downgraded Paytm to sell from buy and Jefferies to underperform from buy. Though the delivery volumes have moderated to 7-9 million shares daily more recently, they still remain above the six month average volume of 2.7 million shares a day.

“As a top global investment destination, many more opportunities are available to investors; so, they should cut their losses and re-deploy their funds in other stocks, given the cloud of uncertainty that hangs over the firm,” said Jay Prakash Gupta, founder of Dhan, a tech platform for traders and investors.

The company sharply narrowed its net loss to ₹221.7 crore in Q3 from ₹392.1 crore in the corresponding year-earlier period.

“When there are issues such as these, markets take a while to settle down,” said U.R. Bhat, co-founder of Alphaniti Fintech. “Investors are generally better off looking at other opportunities that the stock markets offer.”

Anyone seeking to trade in the counter has to put up 50% margin, with the stock being recently put under short-term additional surveillance measures to contain volatility.

Apart from direct buying by small investors, mutual funds, too, raised their cumulative holding in One97 Communications in the third quarter, to 4.99% from 2.79% in the preceding three months. 

Among 23 mutual funds, two major ones were Nippon MF, which held 1.05%, and Mirae MF, which raised its stake to 2.51% from 1.47% in the second quarter.