Paytm stock hits 5% upper circuit for 3rd straight day; 5 factors driving the rally

In today’s trading session, the stock was locked at a 5% upper circuit limit at ₹376 apiece, marking the third consecutive day of a 5% rally. Over these three days, the stock has gained a total of 16%. 

Factors driving the rally

This resume in buying interest can be attributed to several factors, including the RBI extending the deadline, positive comments from management, and recent developments such as the Enforcement Directorate (ED) finding no violation under the Foreign Exchange Management Act, a deal with Axis Bank, and an outperform rating by Bernstein. 

Also Read: Paytm, Nykaa among new-age tech stocks trading below IPO price, Zomato outlier

The RBI on Friday (February 16) gave 15 days more till March 15, 2024, to Paytm Payments Bank (PPBL) to stop deposits, credit transactions or top-ups in any customer accounts, wallets, and FASTags, keeping in view the interest of customers, including merchants.

As per a January 31 order from the central bank, PPBL was asked to stop further deposits, credit transactions, or top-ups in any customer accounts, prepaid instruments, wallets, FASTags, and National Common Mobility Cards, after February 29.

The RBI said this is being done keeping in view the interest of customers (including merchants) of PPBL, who may require a little more time to make alternative arrangements, and the larger public interest.

Also Read: Paytm’s loss is BharatPe, PhonePe, MobiKwik and other fintechs’ gain

Additionally, the company announced the shift of its nodal account to Axis Bank (by opening an Escrow Account). A modification in the nodal account setup will enable merchants to sustain their acceptance of digital payments through the Paytm QR code or card machine. 

This was done to alleviate concerns regarding potential suspensions of merchant payments. This means customers can continue to use, withdraw, and transfer funds from their accounts. However, after March 15, 2024, customers will not be able to deposit money into their accounts with Paytm Payments Bank. 

Also Read: ‘Don’t fall for any rumour’: Paytm QR, Soundbox and EDC to work even after March 15, claims Vijay Shekhar Sharma

Vijay Shekhar Sharma, founder and managing director of Paytm, clarified that Paytm QR, Soundbox, and EDC (card systems) will continue to function even after March 15. He referred to a document released by the RBI, emphasising its clear guidance and urging users to avoid falling for any rumors.

Meanwhile, brokerage firm Bernstein has assigned an ‘outperform’ rating to Paytm, along with a target price of ₹600 per share. As per the brokerage, the Reserve Bank of India’s (RBI) actions are directed primarily at Paytm Payments Bank (PPBL), with no intention to disrupt other integral functions of Paytm. 

This distinction is crucial in understanding the scope of regulatory measures impacting the company. It added that the linking of merchants’ operations to a non-PPBL bank is a “major positive,” which carries significant benefits for Paytm. 

On the other hand, global brokerage firm Jefferies has suspended coverage of Paytm until there is more stability in the news surrounding the struggling Indian fintech major.

Another global brokerage firm, Macquarie, downgraded the stock’s rating to ‘Underperform’ and significantly lowered its target price to ₹275 per share from an earlier target price of ₹650, citing the company’s sharp reduction in revenues across various segments.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before making any investment decisions.

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Published: 20 Feb 2024, 12:38 PM IST