By Keerthana P, Edited by Ritwika Chakravarty
When it was first established in 2010, Paytm was a revolutionary technology. It introduced Indian masses to the arena of digital finance that was already commonplace in the rest of the world. It was accessible and influential, growing steadily over the years. By 2021, every fruit vendor visiting residential colonies had a Paytm QR code. It made everyday transactions smooth and undeniably made life easier both for customers and producers or sellers. No more awkward fumbling for bills, embarrassed perplexity when your card gets declined, and the brief yet agonizing wait for the bill to finish printing.
An Initial Public Offering (IPO) refers to the process of offering a private corporation’s shares to institutional investors as well as the general public. Here, the company’s shares are traded in an open market. IPO listing day is the date when new IPOs are listed in NSE (National Stock Exchange) and BSE (Bombay Stock Exchange) mainboards. Listing day is when IPO shares start trading at the stock exchanges.
Backed by big names like SoftBank, Alibaba, Ant Financial and Warren Buffet’s Berkshire Hathaway, Paytm’s IPO raised ₹18,300 crores from investors and was listed as India’s largest initial public offering. However, a quarter of investors’ wealth eroded on listing day i.e. November 18th, 2021. The fintech company’s shares were trading at ₹1,560 per share by the end of the day, down 27.25% from the issue price of ₹2,150. [NSE]
You would have imagined that such a popular, successful and well supported enterprise would be fought over viciously during its long anticipated IPO opening day. But then, what went wrong?
The stock markets up until recently had been in a long bull-run phase, i.e., prices in the market were rising and were expected to be on an upward trend. They were pulled down from their high amid fears of an increase in interest rates and inflation, and adoption of unfavorable policies by the RBI. Paytm’s weak listing may be attributed to widespread apathy in the equities market as a whole. Sensex fell 372 points the same day as well. Tech companies have had something of a dream run in public markets this year, which is perhaps why investors felt so compelled to give Paytm their money.
It’s worth noting that new investors had little to gain: a large chunk of the money raised (approximately ₹10,000 crores) went to existing investors, 75% of whom were from foreign countries and were rapidly selling their equities by offer for sale (a mechanism that allows promoters to reduce their holdings in listed companies transparently) which accounted for more than 50% of the IPO.
Financial analysts such as Suresh Ganapathy always felt the IPO was overpriced, citing Paytm’s “heavy cash burning business model, no clear path to profitability, large regulatory risks to business and questionable corporate governance….” [Macquarie Capital Securities (India) Pvt.] Other experts believe the company needs to expand more into the finance part of fintech; currently their focus seems to largely be on the technology. Building a stronger finance base may brighten their future prospects.
This stumble may shock India’s recent “frenzied” stock market boom and affect the prices of other IPOs. Seasoned BSE broker Pawan Dharnidharka feels markets “will punish” IPOs perceived to be overpriced.