Aggressive stocks: how much part of stock index
Overvaluation of NSE/BSE stocks:
An example
Last week, our Parliament passed an amendment to the Payment and Settlement Systems Act 2007. This enables the government to allow charges on digital payments including UPI transactions, which are free now. The Finance Minister (FM) clarified that person-to-person UPI payments will remain free and the consumers will continue to pay through UPI, free of charge. However, the FM did not rule out introduction of merchant discount rate (MDR) on limited merchant transactions, in future, above a prescribed threshold, which might be recovered from merchants. This pushed the market price of the shares of the banks and payment service providers (PSPs) positively in the last week. The stocks of One 97 Communications Ltd. (Paytm) witnessed an increase of ₹ 144 (10% ) on 10th August 2026 and closed at ₹ 1585. (previous close ₹ 1441). For the week ended 14th Aug' 26, the share price moved up further and closed at ₹ 1604.
I was surprised with the quantum jump in the above stock, as only three months back, RBI cancelled the license of its banking arm, Paytm Payments Bank Ltd. (PBBL) stating (i) the affairs of the bank were conducted in a manner detrimental to the interests of the bank/ its depositors and (ii) the general character of the management of the bank was prejudicial to the interests of the depositors/public. When RBI issued a press release in this regard, the stocks of Paytm nosedived by Rs.80 (less than 8%) from its then level of Rs.1160, but recovered quickly to higher levels. I felt that the behaviour of the investors, due to occurrence of positive and negative developments, did not indicate the equanimity adopted by them to measure the events judiciously. Hence, I decided to look at the history of the above company including the latest information available in the BSE website about the company.
Brief History: One97 communications Ltd. (Paytm) started its journey in 2000. It launched Paytm in 2009 as a digital platform to facilitate cashless payments and now the scope of its services expanded to other financial services to consumers and merchants. The company became a listed company in the Indian stock exchanges, after raising ₹18300 crores through an initial public offering (IPO) in Nov' 21. The issue price was fixed at ₹2150. (Face value ₹1). However, when the share price was listed in stock exchanges, the price was fixed lower at ₹1950. (18th Nov' 21). In the last quarter of FY 24, when RBI imposed restrictions on the banking arm of the group, viz. PBBL, prohibiting onboarding of new customers, further deposits/credits/top-ups in the existing customer accounts, prepaid instruments, wallets, etc. the share price nosedived to ₹317. However with the approval from NPCI to onboard new UPI users, Paytm started its recovery path. With its decision to monetize non-core business like movie ticketing business (fetching ₹1245 cr.) and stick to its core-business activity viz. digital platform for UPI transactions and other financial services, Paytm's shares started moving above ₹1000.
The market price is still over-valued: Though the stock market price of the share is still lower than the IPO issue price of ₹2150/-, the share is over priced/valued if one considers the following:
1. The stand alone PE (price to earnings) ratio of the company at more than 150 times and the PB (price to book value) ratio hovering around 8 times are much more than the average ratios of Indian stocks and that related to financial services/ fintech entities. The earning per share still remains very low. The stock exchange (BSE) itself carries a message "the scrip PE is greater than 50 for previous 4 trailing quarters". In fact, PE ratio of 'the 52 week low' of the share at ₹947 is more than 90 times.
2. Though the standalone financials for March 26 showed an increased revenue of ₹5825 cr. (5% increase over the FY 25) and the company achieved a net profit of ₹67 cr. (as compared to net loss in FY 25), the notes to accounts indicate:
(i) the company made an impairment provision of ₹395 cr. for a loan and investment given to one of the JVs.
(ii) RBI cancelled the banking license of PBBL and
(iii) the company received a show cause notice from Directorate of Enforcement (ED), Government of India for FEMA contraventions in investments made in subsidiaries (aggregate value ₹611 cr.).
Incidentally, the increase in PBT was mainly due to 42% reduction in employee benefit expenses in FY 26 as compared to FY 25. (declined from ₹2702 cr. in FY 25 to ₹1581 cr. in FY 26).
3. The consolidated financials also mentions that the company has 56 subsidiaries/associates (direct/indirect) and it also made investments in 3 JVs.
4. Paytm, through its subsidiary Paytm Payment Services Ltd, still acts as a payment gateway and payment aggregator, in partnership with other banks. But PhonePe and Google Pay are the major players in digital payments, occupying 46 and 33 percent respectively of the market share of the UPI transactions. The share of Paytm, the only listed company among the aggregators, is just 8%. Though the share of transactions above ₹2000 is estimated to account for 67% of the total transaction value, the revenue that may accrue (if a MDR is introduced with ₹2000 as threshold -highly unlikely, as it may be above ₹5000) for Paytm on this score is very limited, on account of its lower market share in UPI transactions.
Whether the shareholding pattern, a reason for the volatility and overvaluation?
Overseas Investments account for 48% of the shareholding, of which FPI account for 24%. Domestic FIs hold 25% in which MFs account for 18%. Directors including the founder CEO hold 9%, while resident individuals account for 12%. Whether the volatility is caused by the FPIs or MFs or is it by all shareholders? I do not know. I leave it to the experts in the field.
I quite often see the volatility in the share price of a few private banks and NBFCs also from time to time, though their PE and PB ratios can never said to be beyond the tangent. The BSE index was at 26000 points in Jan 2015 and during the current year, it is always above 78000 points. Three time increase over 10 years. The GDP figures have not even doubled in the same period. Whether overvaluation played a major role in the share price increase?
Regards
V. Viswanathan
CGM Retd e-SBT
18th August 2026
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