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Why is Paytm stock falling? January 18 2022Paytm Share News

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Why is Paytm stock falling?

Since its IPO, Paytm's market value has dropped by nearly 51%, resulting in a loss of approximately Rs 70,000 crore. When it went public for the first time, the firm was valued at Rs 1.39 trillion (IPO). Vijay Shekhar Sharma, the founder of Paytm, recently suggested at the India Digital Summit that the firm should be measured against Bajaj Finance, a non-banking financial services provider.

Sharma didn't specify the time period in issue, but according to the most recent figures, Paytm outpaced by Bajaj Finance with 4.4 million loans disbursed in the December quarter. Bajaj Finance recorded 7.4 million loans.

Top 5 Reasons Why Paytm's Stock Price Is Falling

#1 Federal Reserve's signals have had an impact.

The value of new age tech companies throughout the world has been hurt by recent hints that the US Federal Reserve may hike interest rates sooner than predicted.

The Fed's tightening and increased tapering are clearly affecting high valuations. The most significant impact has been felt by some of the new age, new tech enterprises in the United States and India.

During their IPOs, several new age firms wanted a price-to-sales valuation of 40-70 times! Exorbitant values in some parts of the market are anticipated to fall as major central banks across the world embark on a rate hiking cycle.

#2 RBI norms 

The Reserve Bank of India (RBI) has suggested digital payments rules that might curb wallet costs. According to analysts, this sector accounts for 70% of Paytm's income, and new limitations might have a substantial impact.  The company planned to start an insurance business, but the Insurance Regulatory and Development Authority rejected its proposal, potentially jeopardizing its chances of acquiring a banking license. 

#3 Resignations by top management

Paytm recently announced the resignation of three top executives. They were Abhishek Arun, Paytm Payments Bank's COO; Renu Satti, offline payments COO; and Abhishek Gupta, Paytm Payments Bank's senior vice-president and COO. Five prominent Paytm executives had quit before to the IPO. Amit Nayyar, Paytm's president, Rohit Thakur, the company's chief human resources official, and three other vice presidents had resigned. 

Another source of concern for the corporation is senior management attrition. Senior executives have been leaving Paytm, according to the report, which is concerning and might have an impact on the company if the present pace of attrition continues.

#4 Brokerages have downgraded the stock and lowered the target price

Investor morale has been affected by recent downgrades by foreign securities firms. Macquarie Research kept its underperform rating on Paytm, but reduced its target price by 25% to Rs 900 from Rs 1,200 before. This suggests a further drop of 28% from the present price. JM Financial assigned a sell rating to the stock on November 27 and set a target price of Rs 1,240 per share.

#5 Expensive valuations

Paytm wanted a 47x price to sales at its IPO, but now trades at 26x due to the stock price correction. A premium value was sought despite strong competition in each of its business divisions and a lack of market leadership in any of them. Analysts are concerned that long-term profitability may be difficult to attain. According to analysts, most fin-tech companies trade at a price-to-sales growth ratio of 0.3x-0.5x globally. The IPO generated roughly Rs18,200 crore, making it the second-largest after Coal India's initial public offering in 2010.

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