Today’s upside in Paytm shares comes despite an ET report that the Directorate of Enforcement (ED) is likely to initiate a formal probe on issues related to money-laundering and KYC violations at the Noida-headquartered firm.
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Following three days of non-stop selling in lower circuits which led to 42% crash in the stock, Paytm shares ended 3% higher yesterday. At this stage, Paytm shares are solely guided by investor sentiment around the regulatory trouble and Indian fintech poster boy’s capability to tackle it.
In the meeting with the FM, Sharma explained the company’s position with regard to the various issues flagged by RBI. Sitharaman is understood to have impressed upon Sharma the need to discuss the matter with the RBI and sort out the non-compliances that have been flagged, ET reported.
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At the meeting with RBI, Sharma is reported to have sought an extension of the February 29 deadline, a transition plan and detailed the efforts underway to meet compliances specified by the regulator.
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While punters are busy speculating that the stock could have bottomed out, analysts have advised longer-term investors to avoid catching a falling knife.”I think there are better opportunities in the market and acting when you know there is regulatory action impending is speculation. So I would avoid till more clarity comes. It (Paytm) is at an all-time low but in these things you do not know what the bottom is, especially when it comes to regulatory action,” said Gurmeet Chadha of Complete Circle Consultants.
Analysts warn that if the UPI payments do not continue after February-end, then there could be a lot more downside.
The stock took a U-turn yesterday as investors got some faith after global investment banker Bernstein came out with a report giving it an outperform rating with a target price of Rs 600.
Explaining why it leans towards the buy camp, the broker said while the regulatory action will no doubt have a lasting impact on investors’ assessment of the business model risk and of the management’s ability to handle regulatory risk, Paytm will successfully execute the operational changes required to overcome the restrictions.
“While the damage from regulatory action is serious, we expect it to be limited to the products where dependency on PPBL was high (eg. wallets),” Bernstein analysts said, adding that the breakeven point for the company’s balance sheet is now pushed by a year to FY26.