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Paytm IPO GMP turns negative: What D-Street expects on listing day

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Paytm IPO GMP has slipped from a marginal premium to a discount in the grey market ahead of the mega listing on Thursday, November 18, after its IPO saw lukewarm response from investors. Paytm is the latest of new-age companies to hit Dalal Street for capital.

Paytm IPO GMP turns negative: What D-Street expects on listing day
Paytm's grey market premium (GMP) has dropped as the digital payments platform, owned by One97 Communications, gears up for a secondary market debut. Sluggish demand for Paytm IPO in the grey market — an unofficial market for financial securities — has caused the company to trade at a discount of around Rs 20 to the issue price, according to dealers, who said the startup commanded a premium of Rs 50-70 during the launch of its initial share sale.
The Paytm IPO, the biggest of all time in India, saw a tepid response from investors though fully subscribed. Paytm is the latest of new-age companies to hit Dalal Street for capital.
How is Dalal Street reading Paytm's GMP?
Aayush Agrawal, Senior Research Analyst-Merchant Banking at Swastika Investmart, suggests only aggressive investors with a long-term horizon to stay invested in the IPO.
"When the issue opened, Paytm commanded a GMP of around two percent (Rs 40-50), the lowest compared to most of the recently listed companies," he said.


Paytm's GMP has reduced consistently from Rs 130 to Rs 30 on Tuesday, and a discount of around Rs 30 on Wednesday, said Gaurav Garg, Head of Research at CapitalVia Global Research. "This clearly indicates that the listing is going to be at discount," he said.
With a major portion of the IPO being an OFS, Swastika's Agrawal expects Paytm shares to debut on a flat note followed by a negative close at a 5-10 percent discount to the issue price. "As India is buoyant on digitalisation, we expect the company to benefit in the long run. Also, new acquisitions and strengthening of the Paytm ecosystem will be beneficial for the company," he said.
Paytm's payment services account for the majority of its income, and its attempts to broaden its service offerings and market reach may be challenging, which might have a negative impact on its income, Agrawal added.
Nikhil Kamath, Co-Founder and CFO of Zerodha, the country's largest brokerage, told CNBC-TV18 he hasn't researched Paytm, but it "wouldn't be right in asking people to avoid this stock".
"Some very smart investors, like SoftBank, have bet to bank on it and they seem optimistic about the future of Paytm, and what it could do and what it could pivot into in a way," he said, advising investors not to buy "just because 100 other people are buying". Kamath said that doesn't work in the long run.
Grey market dealers not so enthused
"Paytm was the talk of the town since the company revealed its IPO plan, but the sentiments look sluggish for the bulky IPO as it nears its stock market debut," said Abhay Doshi, Co-Founder of Unlisted Arena, a portal that tracks grey markets and deals in unlisted securities.
"The subscription figures indicate very low demand and this may be seen in its listing too. In my view, I don't see Paytm going for a firework-like listing. I am expecting a flat listing and won't be surprised if it lists at a discount," said Doshi, who is not the only pessimist about Paytm's prospects in the market.


Dinesh Gupta, Co-Founder of UnlistedZone, a firm that deals in unlisted shares, expects Paytm to list around the issue price or at a discount. "The discount in GMP suggests it is going to be a litmus test for Indian IPOs as well as for FII funding in India," Gupta added.
Paytm's shares will list on stock exchanges BSE and NSE and Thursday, November 18.
One97 Communications' IPO, which was open for bidding from November 8 to November 10, saw a total subscription of 1.9 times the shares on offer. The portions reserved for qualified institutional buyers and non-institutional investors were subscribed 2.8 times and 0.2 percent respectively. The quota for retail investors was subscribed 1.7 times.
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