The initial public offering (IPO) of One97 Communications, the parent company of Paytm, was one of the most anticipated IPOs in 2021. The Rs 18.300 billion initial public offering, the largest in the history of Indian capital markets, was very excited. even before it was open for subscription.
Several reasons led to the excitement surrounding the IPO, including the sustained upside on Dalal Street, the rush into the IPO, and the success of other new age tech companies like Zomato and Nykaa.
Retail investors had expected Paytm to deliver strong results based on the results of other new age technology firms that previously went public. Because of this, many retail investors were shocked when Paytm stock crashed on the day it debuted on the stock exchanges.
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After collapsing nearly 28 percent after being listed last week, Paytm ended Monday over 12 percent lower. The result was a huge erosion of wealth and market capitalization (m-cap). Even after recovering nearly 10 percent on Tuesday, Paytm’s M-Cap remains below Rs 1 lakh crore.
While the Paytm share gained 10 percent today, it is likely to be volatile in the short term given its catastrophic debut on the stock market. This is because many brokers have questioned Paytm’s stock valuation even at the current level. At closing on Tuesday, Paytm shares were trading on the Bombay Stock Exchange (BSE) at Rs 1,494.95.
WILL PAYTM’S WEAK DEBUT CUSHION IPO Madness?
Many experts believe that Paytm’s poor listing on the stock exchange poses a risk to future IPOs of new age tech startups. It will also dampen general public offering buzz among retail investors.
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Gopal Agrawal, Managing Director and Co-Head of Investment Banking at Edelweiss Financial Services Limited, said Bloomberg that the weak listing “spurs people on to caution” and “does not take the market for granted by blindly placing bets”.
“It is important that a company’s history and prospects are well understood by investors,” he added.
One of the reasons more retail investors have gone public this year is because of the bullish stock market momentum supported by the Reserve Bank of India’s low interest regime.
Another reason is the rush of retail investors who have started to invest in the stock markets for higher returns. All of these factors resulted in a spectacular stock market rally that created an ideal environment for several new age tech startups to go public.
However, many analysts believe that the market debacle of Paytm is forcing technology startups planning an IPO to rethink their strategy as investors may become more cautious.
Earlier in the day The payment company MobiKwik announced that it would carry out an IPO later than originally planned. The announcement was made by the company’s CEO, Bipin Preet Singh, just days after Paytm’s dismal debut.
“We wanted it (the IPO) around November,” said founder and CEO Bipin Preet Singh of the Reuters news agency. “We have a listing window from October and of course we will if we believe we will have a successful IPO.”
Several other new age tech startups planning an IPO could review their strategy and delay their IPO after Paytm’s weak listing.
OVERVALUED IPOs CANNOT BECOME SUCCESSFUL
Several companies went public this year, raising more than $ 15 billion through initial public offerings, which is an annual record in terms of total revenue.
However, there has been a lot of criticism of the high ratings of the IPO prices at which these companies raised money. Paytm has also faced flak because of its high valuation, especially as profitability remains a major concern for the leading digital payments company.
After Paytm’s weak listing, analysts believe investors will be more cautious about upcoming IPOs and weigh risks before bidding. This could have a dampening effect on companies anticipating an IPO, especially large companies with high valuations.
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