Paytm hits 5% upper circuit, continues rally for 3rd straight session; here’s why

Continuing its rally, shares of Vijay Shekhar Sharma-led One97 Communications Ltd zoomed 5% upper circuit for the third straight session today at ₹376.45 on the BSE. The rally was seen as some investors presumed the worst may be over for the fintech major, which has been severely hit by the regulatory directions last month.

The stock has surged 16% in the past three sessions, as investors flock to grab the scrip at a cheaper price. During today's trading session, Paytm shares opened a 5% gap up at ₹376.45, taking its m-cap to ₹23,910.13 crore. Three positive developments -- from RBI, ED and Axis Bank -- triggered the rally in the beaten-down stock, suggest experts.

Paytm parent One 97 Communications said the company has partnered with Axis Bank for Escrow accounts to continue seamless merchant settlements. The arrangement is expected to replace the nodal account that One97 was using with Paytm Payments Bank, the company said, adding that both One97 and Paytm Payments Bank are also in talks with other banks to evaluate a second partner for nodal or Escrow services.

In another breather to Paytm customers using Paytm QR, Soundbox, and Card machines, the company said these devices will continue to work, even beyond the RBI's set deadline of March 15, 2024, for Paytm's associate entity Paytm Payments Bank.

"We assure our users that the Paytm app, and our pioneering devices like Paytm QR, Soundbox, Card Machine will continue to work as always. The shift of the nodal account to Axis Bank (by opening an Escrow Account) will ensure seamless merchant settlements as before," Paytm said.

Paytm shares have seen a significant fall of over 50% in its share price in the past month since the RBI's directions against Paytm Bank. The stock has seen a 41.77% dip in the year 2024 alone.

On the ED probe against the company, no Foreign Exchange Management Act violations have been found against the company, except for some lapses around KYC norms, reports suggest.

Meanwhile, in the latest blow to the company, brokerage major Jefferies Financial Group Inc temporarily discontinued its coverage on the Paytm stock, moving it to "not rated". Jefferies says without a banking license, Paytm's business model will become “similar to pure payment service providers like PhonePe, GPay, Pine Labs, etc”.

The RBI last Friday extended the deadline for restrictions on services of PPBL to March 15, keeping in view the interest of customers (including merchants) of PPBL, who may require a "little more time" to make alternative arrangements. The central bank also released a list of Frequently Asked Ques­tions (FAQs) for the convenience of Paytm Bank customers and the general public.

The RBI action pertains to its January 31, 2024, directions, which stopped PPBL from onboarding new customers and barred the company from taking further deposits or credit transactions. It also stopped transactions like top-ups in any customer accounts, prepaid instruments, wallets, FASTags, NCMC cards, etc. after February 29, 2024. To meet the criteria set by the RBI, the One 97 Communications board recent formed a group advisory committee chaired by former SEBI chairman M Damodaran to work on strengthening compliance and regulatory matters.

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