Market Walk

Paytm Targets – Which of the extremes should the Indian investors actually believe?

For Paytm, the positive rating and buy call from Dolat Capital came like the proverbial manna from heaven. Paytm rallied sharply after the report as it tried its best to put the series of negative reports behind and just move forward.

Paytm – The Fall and rise

The Paytm stock was a case study in volatility in the first five days of listing. It fell 41% from the issue price within 2 days of listing and then rebounded a full 40% from lower levels. The sharp fall in Paytm was triggered by negative reports on the Paytm stock by Macquarie and JM Financial; both brokers setting price targets of Rs.1,200 for Paytm. These reports had spooked the Paytm stock before some concerted buying by some of the anchor investors saved the day.

Dolat Capital gives a Buy

In the midst of the melee, Dolat Capital was the first Indian broker to give a buy call on Paytm with a price target of Rs.2,500. That is 16% higher than the IPO price and should really warm the cockles of most investors. Dolat has given 2 distinct reasons for the upgrade. It has pointed that at the current run rate, Paytm would be profitable by FY26 which is about 4 years from now. Of course, a lot could change by then, but we will not get into that. The second reason is the ability of Paytm to make the best of its data franchise to create multiple revenues streams for Paytm.

What should investors do?

Contrasting reports are nothing new in the Indian context. However, with little trading history, investors are relying on and trying to make sense of contrasting signals coming from the brokers. One is a bullish view on the stock with a target of Rs.2,500 and the other is a bearish view on the stock with a target of Rs.1,200. The truth either lies between this range or even outside this range. That would only be known over time. The bigger question is how should the investors actually approach this stock or should they stay away altogether?

Separate the long from short

Just divide Paytm into dual time frames. At the short end, there are substantial headwinds. Inflation is rising, the Fed is going to tighten the monetary levers and Omnicron virus is return as a new variant. In addition, the Indian IPO markets have seen the kind of deluge they have not seen in many years. Loss making digital plays are raising billions of dollars and investors are finding it hard to justify these stories. The other side of the story is the long side. Clearly the journey to digital is unstoppable. For most businesses, it is about digital properties and marketplaces. Paytm has an enviable data franchise of over 35 crore customers with billion touchpoints. You are never too far from using your Paytm. That is an intangible advantage that is hard to beat and to monetize!

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