The once-thriving Paytm, a leading startup in India, has experienced a dramatic decline in the stock market this week, marking a continued plummet since its massive initial public offering (IPO) in 2021. Shares of the digital payment giant have undergone a staggering decline, hitting the maximum allowable decrease in Mumbai for two consecutive days, despite India’s stock markets reaching new highs. Since Wednesday’s closing, Paytm has tumbled by 36%, with a nearly 25% drop this year alone.
The company has faced significant challenges since its turbulent market debut in November 2021, failing to persuade investors of its potential profitability amid intensifying competition from domestic and international tech companies. Compounding its woes, regulatory issues emerged when the central bank prohibited its banking division from onboarding new customers two years ago.
With shares now trading at a mere 487 rupees (approximately $6) per share, the recent nosedive has erased a staggering $2 billion in market capitalization, leaving the company with a diminished valuation of only $3.7 billion. The latest downturn was triggered by additional regulatory actions from India’s central bank.
The Reserve Bank of India (RBI) recently instructed Paytm Payments Bank to cease accepting deposits and suspend other essential services due to “persistent non-compliances.” This directive, which caught the Indian tech community off guard, prompted Paytm to adopt damage control measures in an attempt to reassure investors and its vast user base of over 300 million.
However, despite pledges to swiftly address regulatory concerns and a subsequent conference call held after trading hours on Thursday, investor confidence continued to erode. According to Manish Chowdhury, head of research at brokerage firm StoxBox, the RBI’s directive poses a significant “reputational risk” to Paytm’s overall business and raises uncertainties about its future performance.
Founded in 2017 as a joint venture with founder Vijay Shekhar Sharma, Paytm initially operated as a payments bank, allowing deposits but not extending loans to customers. During Thursday’s conference call, Sharma downplayed the central bank’s actions as a temporary setback, asserting that Paytm will henceforth collaborate solely with other banks.
Paytm gained widespread recognition in 2016 when Indian Prime Minister Narendra Modi invalidated the nation’s two largest currency denominations, constituting approximately 86% of the country’s cash supply, as part of efforts to combat tax evasion and illicit wealth accumulation. Although the move caused significant disruptions to the economy, it fueled Paytm’s rapid expansion, attracting 10 million new users within a month and cementing its status as a household name in India.