Paytm shares sunk over 13% on the stock exchanges on Monday after the Reserve Bank of India's (RBI) directed Paytm Payments Bank (PPBL) to temporarily halt onboarding of new customers. The embargo will have an adverse impact on signing up users for new PPBL wallets or savings or current accounts, until further notice.
The central bank also asked the payment bank to appoint an IT audit firm to conduct a comprehensive system audit of its IT system. The company had received RBI's approval to operate as a scheduled payments bank in December last year. Paytm shares have fallen by 15% in the last one month, while the BSE Sensex dropped by 4.5%. Year-to-date, the stock is down by 42%, while the BSE Sensex has fallen by 5%. Given its weak performance in the stock market, is it worth investing in these new-age stocks?
The Vijay Shekhar Sharma-led company had raised ₹18,300 crore in the country's largest-ever initial public offering (IPO) last year, which received tepid response from investors.
The central bank's action of barring the company to onboard new customers amid "material supervisory concerns", asking for an IT audit and later the case of CEO arrested for rash driving would create a huge impact on stock in terms of price, says Manoj Dalmia, founder and director, Proficient Equities. However, Dalmia doubts that in terms of business, the impact would not be substantial.
Brokerage houses have already revised the expected target price downward for the digital wallet firm's stock in the coming future. Expecting moderation in onboarding of new users and the adverse impact on incremental payment revenue, ICICI Securities has revised the share's target price from ₹1,352 to ₹1,285. "We were estimating Paytm's consumer base to grow by 10% in FY23E and monthly transacting users to increase at over 25% run-rate. Now, the company will have to increase its efforts to enhance engagement with the existing user base to offset the adverse impact of embargo on new users," says a report by ICICI Securities. The brokerage house maintains a 'Buy' rating.
While the immediate impact of the regulatory concerns will be negative. As per Ravi Singh, head of research and VP, Share India, Paytm has already boarded a very large customer base onto the payments bank, but the ban may affect their chances of upgrading to a small finance bank. "The stock may see more selling pressure and may touch the level of 500 in the medium term," says Singh.
These are make-or-break stocks. As per Manoj Dalmia, investors may reduce exposure to new age stocks like Paytm, Zomato, Nykaa etc. as they have faced several selling pressures from investors. "The valuations they ask are huge and are based on future business scope and not on present business. One may keep a small portion allocated in these stocks and go for other established businesses in small and midcap sectors with a strong business framework," he adds.
Shares of Nykaa parent FSN E-Commerce Ventures have plummeted by 33% year-to-date. In the one-month period, the stock has dropped by 16%. Zomato shares are down by 42% year-to-date and by 10% in the last one month period.
Only if you have patience and a long-term view of more than five years, says Ravi Singhal, vice chairman at GCL Securities, you can invest up to 7% of your risk capital. Singhal estimates the target for the next six months at up to 920 to 1,000, while in the bear case; the target is 600 to 680. However, if RBI limitations stay in place for an extended period of time, he adds, this will be an issue.
"Those with a long term view, may look at taking a fresh entry if these stocks fall another 3-5%," says Ravi Singh.