Paytm faces challenges as Jefferies drops ratings, with potential for limited rally in shares despite recent positive developments.
Paytm, the popular digital payment platform, has been in the news lately for various reasons. The recent tie-up with Axis Bank has brought some relief to investors as Paytm shares saw a 5 percent rise, ending a 6-session losing streak. This collaboration has also led to the RBI extending the deadline for Paytm Payments Bank operations, allowing digital payments with Axis Bank until March 15.
However, despite these positive developments, long-term concerns linger around Paytm. Experts are wary about the potential impact on earnings, customer base, and lending partners. Investors are advised to exercise caution and wait for more clarity on Paytm’s plans, especially post the March 15 deadline set by the RBI. Some are suggesting a sell-on-rise strategy if the stock price surpasses Rs 400, given the current uncertainties.
Jefferies India’s prediction of a 28 percent year-on-year decline in revenues and the drop in rating on Paytm indicate a challenging road ahead. There are speculations that Paytm’s business model could shift towards that of a pure payment service provider without a banking license. To retain users and attract merchants, Paytm might dip into its cash reserves to provide discounts and incentives.
Despite the hurdles, there is a glimmer of hope for Paytm’s future prospects. Market developments post-hours on Friday could lead to a trend reversal, potentially boosting investor confidence. However, the overall sentiment towards Paytm remains cautious, with uncertainty surrounding regulatory actions and the company’s strategic moves.
As the situation unfolds, it is essential for investors to weigh the risks and rewards associated with Paytm’s business. The valuation of the company is likely to fluctuate based on factors such as user and merchant retention rates and the resulting impact on net revenues. With regulatory actions and investor sentiment hanging in the balance, the road ahead for Paytm appears to be a challenging one.