Spoiling the party: Paytm debacle roils market for unlisted shares

Paytm’s dismal debut on the stock exchanges has roiled the market for unlisted shares, with the prices of several regularly-traded scrips falling as much as 40 per cent this week.

Platforms facilitating trading in unlisted shares fear that investors’ interest in pre-IPO and unlisted stocks may diminish as the unprecedented sell-off in Paytm shares has shattered confidence.

“As far as the unlisted market is concerned, Paytm’s poor listing is the single biggest factor behind the fall in other unlisted stocks,” said Dinesh Gupta, director of Unlisted Zone. “IPO plans of other loss-making and tech companies are in jeopardy. Also, volumes in the unlisted market have dried. Things could remain subdued till the time we get one or two blockbuster IPOs.”

Shares of Reliance Retail are now changing hands 25 per cent below their recent high, while those of MobiKwik and AGS Transact have dropped 40 per cent. IPL franchise Chennai Super Kings’ share price, too, has corrected 15 per cent, he said.

Market players are not ruling out further correction.

Market experts say the slump in activity in the unlisted market is a harbinger of things to come in the IPO market.

“The unlisted space can provide good guidance. More correction is expected and it should be welcome. The correction has infused some faith in common-sense investing in the stock markets. The prospects of these unlisted new-age companies will depend on whether they are making profits or having hopes for making profits in the future. The EV/Ebidta is in the sensible range. For those who do not fulfil these two criteria, the correction has just started," said G Chokkalingam, founder, Equinomics Research & Advisory.

Several savvy investors had lapped up shares of Paytm around Rs 1,800-Rs 2,000 levels a few months ahead of its IPO on optimism that the stock would touch Rs 3,000 levels post-listing. However, as these bets have gone awry, they are dumping other pre-IPO shares, fearing a similar fate. They had placed similar bets on other companies that paid off handsomely thanks to the IPO frenzy seen this year.

“Over the last couple of months, the valuations were going crazy in the unlisted space. The feeling was whatever value you pay, you will make much more on the listing. Whatever was available was being lapped up. The whole idea was to wait for listing and get an opportunity to exit, although there is a lock-in period of one year. The Paytm listing has put a question mark on valuations," said Ambareesh Baliga, an independent analyst.

Paytm, which raised a record Rs 18,300 crore in its IPO, saw its shares drop 27 per cent during its first trading day on Thursday and another 13 per cent on Monday, wiping out over Rs 51,000 crore of market cap. Its stock rose 10 per cent on Tuesday to close at Rs 1,495, still 31 per cent below its IPO price of Rs 2,150. 

Market experts say the Paytm IPO fiasco will lead to investors asking more questions and give more importance to metrics such as cash flows and price-to-earnings.

“Those questions were never asked earlier. Whether this correction will continue or not depends on the next few IPOs in that space. If they are priced well, and a decent amount is left on the table for investors, things will change for the better. If you have a few more issues bomb, then it will be difficult,” Baliga said.