Paytm is down 36% from its issue price. The IPO received a rather lukewarm response from Dalal Street as it went public last week. To understand what triggered such a disappointing response from investors, CNBC-TV18 sat down with Ajay Srivastava, CEO of Dimensions Corporate Finance Services. Srivastava believes it is best to wait for the 30 day lock-in period as this should be the first trigger that will help understand where price will eventually settle for newly listed companies.
“It doesn’t matter, because even at Rs 90,000 crore, it’s a pretty well-valued company. 30 days is an important trigger to see what kind of supply comes into the market at the end of the first block. Number two is whether or not the stock falls into the large cap category, in which case mutual funds will by nature have to buy to balance their holdings and all large cap funds will get some sort of demand for it. So these two triggers will dictate and not the fundamentals; nothing will change in the business over the next 30-60-90 days, but these two triggers could eventually help us understand where price is going to settle, ”he said.
Srivastava added, “In my opinion, SEBI will try to help the stock and should help the stocks fall into the last category. So there is some demand from mutual funds. Unlike Nykaa, for example, Paytm has no pent-up requests in the FII system. Therefore, the follow-up purchase, unlike the other two stocks, could only come from Indian mutual funds. This is Paytm’s dilemma. The other two stocks had so many pent-up demands from the FII that people who couldn’t get the full quarter may want to come and buy after the stuck 30-day supply. So, I think people, like Nykaa, would have a much stronger position. Paytm, due to lack of pent-up demand, has to depend on Indian investors and mutual funds for its supply to be absorbed. Otherwise, you might see a new correction in the stock.
In the markets, Srivastava said: “There is a structural problem in the market and that is the lack of demand. Equities focused on the FII is what you see in the Nifty, especially in the banking sector; the IFIs have been selling tirelessly for almost months. It’s the seventh or eighth month now that we’ve seen secondary market sales, and who is the buyer, the Indian retail buyer usually doesn’t buy stocks, they buy mid caps. Mutual funds also, the main inflows have been in mid-cap plans. So there is a structural problem in the market that will buy the big Nifty shares and in particular in the banking sector. Now this is the big bear in the room that no one trusts in this sector outperforming the market and until the bank is shut down I don’t think the market can have the confidence to see a excellent setup. Therefore, until the FIIs start to come in by buying heavy Nifty stocks, I think we will see weakness in the market. “
He added: “The second problem is that the big retail government purchases have moved to IPOs, a lot of cash has gone to cryptos, the second group of cash has gone and mutual funds, on the whole, are now focused on SIP. There isn’t a big flow that we see in there, a lot of HNIs have gone for a PE type model rather than the side purchase. So unless there is a demand from the IFIs, I don’t think retail can come in. So regardless of what happens, we have expanded valuation, expanded EP multiples. We need good quality buyers to get into Nifty stocks, especially bank stocks, because that’s what is driving the market right now. “
For a full interview, watch the accompanying video.
(Edited by : Dipikka Ghosh)