Hold 'Paytms' in your portfolio? The simple answer to minimising risk to your stock and overall portfolio
Paytm story is headed. As you know well, even without the regulatory troubles, I didn’t have a high opinion of Paytm, either as an investment or as a business. Now, with the RBI coming down like a ton of bricks on Paytm Bank, things are much worse.
In the first three days of the RBI’s action, the Paytm stock dropped by a cumulative 43%. For a widely held stock with a large market capitalisation—Rs.42,000 crore before the drop—that’s a huge wipeout. Despite widespread scepticism about Paytm, as many as 70 equity mutual funds, and many other institutional investors as well as individuals own a part of it.
A 43% drop in three sessions is probably quite rare for such a stock and, in fact, may never have happened earlier except in case of a general marketwide rout.
Even so, this column is not about Paytm, but about what investors should do when a stock they have invested in is Paytm-ed, a new way to use ‘Paytm’ as a verb. On the face of it, this theme is deceptively similar to what I wrote last week, which was based on the (much smaller) drop in the stock price of the HDFC Bank. The bank’s stock fell a total of 15% in mid-January and has since settled at this lower level.
Of course, since HDFC Bank is a giant, its 15% market drop amounts to Rs.1.77 lakh crore, far more than Paytm’s entire market cap.
The two cases are fundamentally different. In HDFC Bank’s case, I had essentially said that established companies build significant business momentum over time. Their size and success are no accident, stemming from deep strengths that take years to erode.
