Thu. Mar 28th, 2024
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India’s Paytm’s initial public offering sent shock waves to the entire investor’s community, sending doubts about the prospects of technology firms going to be listed in what was assumed to be the country’s breakout year.

In only two trading sessions, retail investors who bought an unprecedented quantity of shares in Paytm’s parent company One 97 Communications Ltd. had to lose 35% of their value. If the stock would have fallen from its Monday closing price of Rs 1,359.6 to the Rs 1,200 as forecasted by Macquarie Group Ltd, further losses were in sight. Today, the stock of Paytm gained 9.94%, closing at Rs 1494.70. By the 23rd of November, the market cap of Paytm stood at 96.71TCr.

“The event in a way will nudge people to be cautious and not take the market for granted by blindly placing bets,” said Gopal Agrawal, managing director and co-head of investment banking at Edelweiss Financial Services Ltd. “It is important that a company’s story and prospects are well understood by investors.”

This year, India’s stock markets have soared, boosted by a central bank that lowered interest rates to a new low and millions of new private investors seeking bigger returns in riskier assets. At least a half-dozen digital businesses, including SoftBank Group Corp.-backed Oyo Hotels & Homes and logistics company Delhivery Pvt., have sought public listings as a result of the rise.

South Asian based firms raised $15 billion through IPOs this year, already setting records. Though some of these IPOs’ valuations are under the radar of critics, as they believe some loss-making companies are getting valuations of unexpectedly high figures. 

“The pandemic led to huge technology adoption in the country that got priced into the valuations of many technology companies,” said Ashutosh Sharma, vice president and research director at Forrester Research Inc. “Is this the beginning of a downward trend? I don’t know. But going forward, investors will look cautiously on the risks and business future of tech companies,” quoted various media houses. 

The massive size of Paytm’s IPO also limited demand, which might augur well for smaller upcoming IPOs. Zomato Ltd., a food delivery service, and Nykaa, a cosmetics company, both of which are smaller than Paytm, have seen their stock rise by more than 80% since their IPOs.

According to Agrawal of Edelweiss, share transactions should be priced to “leave something on the table for investors.”

 “If an issue could be priced 10% higher or lower, it will be advisable to go with a lower pricing, which offers a much bigger upside when it comes to trade,” he said.

By Harshita Sharma

I bring to you updates from business, policy and economy spectrum.

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