Paytm's update post-RBI action fails to assuage investors' concerns as stock crashes 20% again; analysts remain bearish

Paytm share price: Paytm shares, after a heavy beating in Thursday’s trade, once again hit a 20 per cent lower circuit in the opening trade today (February 2). In the previous session, shares of the fintech firm settled at the 20 per cent lower circuit at Rs 608.8 per share on the BSE.

The massive erosion in Paytm’s stock price is the result of the RBI’s stringent action, whereby the apex bank has prohibited Paytm Payments Bank Limited (PPBL) from accepting deposits or top-ups in any customer account, prepaid instrument, wallet, or FASTags after February 29, 2024.

However, in its conference call later in the day on Thursday, February 1, Paytm said that the company was taking immediate steps to comply with RBI directions. “PPBL is taking immediate steps to comply with RBI directions, including working with the regulator to address their concerns as quickly as possible, said One 97 Communications, the parent company of Paytm, in its filing with the exchanges.

Further, One 97 Communications said that this does not impact user deposits in their savings accounts, wallets, FASTags, and NCMC accounts, where they can continue to use the existing balances, according to the filing.

In another development, Paytm founder Vijay Shekhar Sharma said on Friday that the app would continue to operate beyond February 29.

"Your favourite app is working and will keep working beyond 29 February as usual. I, with every Paytm team member, salute you for your relentless support. For every challenge, there is a solution, and we are sincerely committed to serving our nation in full compliance," said Paytm founder Vijay Shekhar Sharma in a post on X.

To every Paytmer,
Your favourite app is working, will keep working beyond 29 February as usual.
I with every Paytm team member salute you for your relentless support. For every challenge, there is a solution and we are sincerely committed to serve our nation in full…

— Vijay Shekhar Sharma (@vijayshekhar) February 2, 2024

How do global brokerages and other analysts see Paytm stock performing going forward?

JP Morgan has downgraded the counter to ‘underweight’ from the previous ‘neutral’ stance, slashing the target considerably to Rs 600 from the earlier Rs 900. The brokerage believes that regulatory action at the firm impairs its profit pools, network effects, and credibility. Furthermore, the global brokerage added that the recent order by the RBI is not seen as the end of the road for the company; nevertheless, it materially impacts near-term growth.

"It will be a major blow to the Paytm stock because it is struggling to turn the bottom line positive. The recent RBI direction will affect the company as other payment banks are also picking up. Now it will affect the shareholders,” noted Chokkalingam G., founder of Equinomics. 

Stocks such as Paytm are generally viewed more based on their perception of long-term prospects than the bottom line in the short to medium term. That's what helps these new-age companies shore up their market cap. The recent development will have a significant adverse effect on stock prices even if the regulator's measure is temporary, the expert added.

Meanwhile, Morgan Stanley has retained its ‘equalweight’ call on the stock with a slashed target of Rs 690 as against Rs 830 apiece earlier.

The sentiment has turned sour and bears have taken control over the price action. Conservative traders are recommended to avoid this stock. Unless clear stability emerges, the price action is highly undeterminable, noted Avdhut Bagkar, Derivatives & Technical Analyst, StoxBox.