Paytm lacks pent-up demand from FIIs, see stronger standing for Nykaa: Dimensions Corp

Paytm is 36 percent down from its issue price. The IPO received a rather lukewarm response from Dalal Street as it got listed on the bourses last week. To understand what triggered such an underwhelming response from the investors, CNBC-TV18 caught up with Ajay Srivastava, CEO of Dimensions Corporate Finance Services. Srivastava believes it is better to wait for the 30-day lock-in period because that is expected to be the first trigger that will help to understand where the price will eventually settle for the newly-listed companies.

“It doesn't matter as even at Rs 90,000 crore, it is pretty decently valued as a company. 30-day is an important trigger to see what kind of supply comes to the market when the first lock-in ends. Number two is whether or not the stock gets into the large-cap category, in which case mutual funds by nature will have to buy to balance their holding and all the large-cap funds would get some kind of a demand for it. So those two triggers are going to dictate and not the fundamentals; nothing will change in the company in the next 30-60-90 days but those two triggers could possibly help us understand where the price will settle down,” he mentioned.

Srivastava added, “To my mind, SEBI will try to help the stock and should help the stocks to get into the last category. So there is some demand from the mutual funds. Unlike Nykaa, for instance, Paytm doesn't have any pent-up demand in the FII system. So therefore, the follow-up purchase, unlike the other two stocks could only come from Indian mutual funds. That's the dilemma of Paytm. The other two stocks had so much pent-up required demand from the FIIs that people who could not get the full quarter may want to come in and buy post the 30-day lock-in supply coming in. So, I think the people, like Nykaa, would have a much stronger standing. Paytm, because of lack of pent-up demand, has to depend on Indian investors and mutual funds for its supply to be absorbed. Otherwise, you could see a further correction in the stock.”

On markets, Srivastava said, “There is a structural issue in the market and that is the lack of demand. The FII-driven stocks, that is what you see in the Nifty, particularly in the banking sector; the FIIs have been relentlessly selling now for almost months. It is the seventh or the eighth month now that we have seen secondary market sales, and who's the buyer, the Indian retail buyer does not typically buy the stocks, he buys the mid-caps. Mutual funds also, the major inflows have been in mid-cap schemes. So there is a structural problem in the market that who's going to buy the big Nifty stocks and particularly in the banking sector. Now, that is the big bear in the room that nobody has faith in that sector outperforming the market and, till banking is not pulled up, I don't think the market can have the confidence to see a great setup. Therefore, till the FIIs don't start coming in, buying Nifty heavy stocks, I think we will see weakness in the market.”

He added, “The second problem is that big retail public buying has gone into IPOs, a lot of liquidity has gone to cryptos, the second bunch of liquidity disappeared and mutual funds, by and large, are now SIP driven. There is no large flow that we see in there, lots of HNIs have gone for a PE kind of model more than buying secondary. So, unless there is some demand coming in from FIIs, I don't think retail can come in. So irrespective of what happens, we have an expanded valuation, expanded PE multiples. We need good quality buyers to come into Nifty stocks, particularly the banking stocks, because that's what is dragging the market now.”