That is anything but normal

One can argue that all digital stocks fell sharply, but that misses the point. Most digital stocks have fallen from highs but Paytm never got even close to 85% of the IPO price. What is more surprising is that the largest issue in Indian history till date, does not seem to have willing buyers even after such a sharp dip. We do get analogies of Bharti Airtel and Infy but these stocks, unlike Paytm, never got fancy valuations from PE funds. 

News flows are getting worse

The negative news flows began with the Macquarie downgrade. It continues to peg the target lower as there is lack of clarity on scale and profits. Investors who want scale and profits in the next quarter buy HDFC Bank and Infosys; not Paytm, but you cannot argue with the markets. There was worse to come in terms of news flows. Firstly, the RBI barred Paytm Payment Bank from taking on fresh accounts. Then there were allegations of Paytm leaking critical data to its Chinese partners. All this only added to the pessimism surrounding the stock. The net result has been that the digital IPO market is on standstill mode. 

Missing the wood for trees

For all the strident criticism and the sharp price fall, One97 Communications, continues to present impressive top line numbers. For instance, its GMV or gross merchandise value has been growing quarter after quarter. The total retail customer franchise at over 33 crore and more than 2 crore merchants on Paytm platform is an infallible combination. As we have seen in the past, even in the case of US companies like Twitter, FB and Amazon, it does take time to be able to monetize a huge data bank of customers. But, when the process starts then the benefits grow geometrically. 

What is the Paytm challenge?

The problem is that the holdings of Vijay Shekhar Sharma is now down to less than 9%. Among big early investors, Ant Financial, Alibaba, SAIF Partners and the Japan based Softbank hold about 65% stake in Paytm between them. Then there is also Berkshire Hathaway, but the stake is much smaller at less than 2.5%. Clearly, for the early investors, the damage to the stock price gives them the opportunity to nominate their own person to run the business. As the stake of the original promoter dwindles rapidly, their ability to stay at the top comes into question. We saw that in the case of Flipkart also. The mess may end with Vijay Shekhar Sharma stepping down and making way for a nominee of the PE funds to head Paytm India!