You are currently viewing Paytm stocks trigger a 20% lower circuit following RBI action. What’s your move: buy, hold, or sell?

Paytm stocks trigger a 20% lower circuit following RBI action. What’s your move: buy, hold, or sell?

In early trading, Paytm stocks experienced a sharp decline:

Hitting the 20% lower circuit due to regulatory actions by the Reserve Bank of India (RBI) against its affiliate, Paytm Payments Bank Limited (PPBL).

Numerous brokerages anticipate substantial impacts on earnings and valuations. Jefferies downgraded Paytm to ‘underperform’ with a target price of Rs 500 per share. While Macquarie, holding a ‘neutral’ stance, reduced its target price to Rs 650 per share.

On the Bombay Stock Exchange (BSE), Paytm stocks were halted at Rs 608.80, marking a 20% decline.

The RBI’s instruction to Paytm Payments Bank Ltd:

Limiting new credit and deposit operations, top-ups, fund transfers, and other banking activities starting February 29, instigated these events.

Macquarie emphasized that this action would significantly hamper Paytm’s ability to retain customers within its ecosystem. Bernstein observed that the RBI notification essentially signals the cessation of Paytm Payments Bank operations.

It is now representing a negative development and adding to regulatory uncertainties surrounding the business.

In response, Paytm clarified that the RBI’s action does not affect user deposits in savings accounts, Wallets, FASTags, and NCMC accounts. However, it acknowledged that it would exclusively collaborate with other banks and not with Paytm Payments Bank Limited.

Taking into account the long-term consequences, both Macquarie and Jefferies voiced worries about the possible effects on revenue and profitability. Macquarie emphasized the prolonged duration of RBI’s actions against Paytm, pointing to substantial deficiencies identified during thorough IT audits. Jefferies expressed apprehensions regarding the potential decline in wallet gross merchandise value (GMV) and potential repercussions on merchants utilizing Paytm Bank, which constitutes 6% of devices. Fastag GMV is expected to be notably impacted, posing risks to earnings and valuations.

Disclaimer: The perspectives, viewpoints, recommendations, and suggestions articulated by experts/brokerages in this article are their own and do not represent the viewpoints of the India Today Group. It is advisable to seek advice from a qualified broker or financial advisor before making any actual investment or trading decisions.