Paytm Lelu Kya???

We all use Paytm for various household purchases. It has revolutionized the payment process. More than us, roadside vendors like vegetable shops, pan shops, chai ki tapari, and rikshawalas are the beneficiaries of Paytm. 

Paytm, which is an acronym for “pay through mobile” was founded in the year 2010. It managed to garner investor’s money and hence expanded quickly. In a few years, Paytm has become a verb from a noun. It is a commendable achievement for any startup. 

At this stage, everything was going picture-perfect for Paytm. It has money, it has marquee investors, it has the market, it has customers, it has a name, and it has fame. As a founder, what more do you expect and desire from life? 

But human ambitions have no limits. The human mind is as greedy as ever. 

Paytm is the classical behavioral case study for founders as well as for stock market investors. It exemplifies excessive ambition, greed, and exuberance. 

Paytm went public in the year 2021. It was the largest-ever IPO in India. The public issue was priced at the upper band of Rs. 2150. It was too high a valuation. This price band reflected the thinking process of the management. They did not leave anything on the table for the retail investors. 

On the first day of listing, the share price closed at Rs. 1560, 27% below the upper band. However, there was a lot more in store for this company.

Recently RBI imposed certain restrictions on Paytm Payment Bank Ltd (PPBL) due to various regulatory non-compliance issues. And what followed next is what has always been happening.

On the same day, the stock tanked by 20%. 

On the second day, it further dwindled by 20%.

On the third day, thanks to the circuit filter, it dropped again by 10%.

In a span of just three trading sessions, the Paytm stock fell by about 40%.

 As per RBI, it has issued many warnings to the company, but it seems to have not paid any heed to such warnings. To add agony to the sorrow, ED also started investigations. 

Why did this happen? 

The fundamental reasons are:- 

1. “Chalta Hai” attitude 

2. “Manage ho jayega” mindset

3. Overconfidence

4. Greed

5. Ambition to grow at any cost

6. Lack of empathy towards retail shareholders

Due to all this bad news, the stock is now trading at Rs. 341/- per share. It is a whooping loss of about 80% from the life high of Rs.1955. It means Rs. One Lakh invested reduced to merely Rs. Twenty Thousand. 

Welcome to the harsh reality of the stock market.

With excessive exuberance and greed, many retail investors participated in this IPO and entered at higher levels. They all are stuck up now. They are waiting for the price to recover. It is going to be a long wait. They might never see the buying price again. 

This is not the first case of a lack of corporate governance and certainly not the last one. History is replete with such examples. But we human beings tend to forget the past in anticipation of a better future. 

We, at Defensive Investments, are regularly educating investors on financial behavior and the risks associated with equity investments. Despite this endeavor, it is observed that greed always takes supremacy over everything else when it comes to money. 

Yesterday I received a call from my friend asking, 

“Paytm Lelu Kya???”

I am still searching for words to answer him.

Charlie Munger said, “All I want to know is where I am going to die so I will never go there.”