The shares of Paytm’s parent firm, One97 Communications Limited, continued to fall sharply for the second straight trading session, leading to a big drop in market capitalisation.

The market capitalisation of Paytm plunged below Rs 1 lakh crore after shares of the digital payments firm failed to recover on day 2. Paytm shares were down over 14 per cent at 1:30 pm at Rs 1,342 on the Bombay Stock Exchange (BSE) and nearly 14 per cent on the NSE. Earlier in the day, Paytm shares had slid over 18 per cent.

Paytm shares crashed nearly 28 per cent after it made its debut on the stock exchanges on Thursday, eroding nearly Rs 38,000 crore worth of investors’ wealth. The losses have increased to over Rs 50,000 crore on the second day, signaling a dip of over 40% over the IPO price.

INVESTORS IN SHOCK

The steep fall came as a shock to investors who had backed Paytm’s Rs 18,300 crore IPO. Paytm’s debut on the stock market was one of the weakest among other new-age digital startups that got listed earlier this year, including Zomato, Nykaa and Policybazaar.

It may be noted that many brokerages had expressed concern about Paytm’s IPO’s expensive valuation and the company’s business model before the company got listed. Most analysts have asked investors to stay cautious about the stock due to the current volatility and the overall market sentiment.

It is worth mentioning that Paytm’s stock tanked on the second day after listing despite reporting a sharp jump in gross merchandise value due to the higher festive season spending. However, that has had little impact on investor sentiment, given the stock’s weak performance today.

WHAT SHOULD YOU DO?

Most analysts said Paytm’s stock price may remain subdued over the short to medium term as a large number of retail investors may try to sell the stock as soon as the price rises. At the same time, new investors are unlikely to touch the stock before the sentiment improves.

The underlying issue seems to be related to Paytm’s expensive share valuation and the company’s ability to generate profit. It may be noted that Paytm’s IPO price band at Rs 2,150 faced criticism from many experts. Even after tanking nearly 28 per cent after its debut on Thursday, Paytm’s valuation was higher than most peers.

Foreign brokerage Macquarie Capital recently released a research report, criticising Paytm’s expensive valuation and business model. Other analysts have also followed up since then and expressed concern over the stock’s high valuation.

The brokerage had valued Paytm’s stock at Rs 1,200 at a valuation of 0.5 times to sales growth multiple on December 23 annual sales. “Paytm has been a cash-burning machine, spinning off several business lines with no visibility on achieving profitability. Unless Paytm lends, it can’t make significant money by merely being a distributor,” the report stated.