What’s next for Paytm stock after 3% recovery? Don’t buy yet, if you don’t have huge risk appetite

In the last one week, the stock is down 41 percent

Paytm stock rose over 3 percent on February 6 with possible bargain buyers, recovering from a 42-percent plunge in the previous 3 sessions after RBI’s sweeping curbs on its payments bank and a slew of brokerage downgrades.

Although the popular mood is cautious on the stock, analysts say Paytm is now trading at attractive valuations and could be a good buy for investors with a huge risk appetite. The Reserve Bank of India has restricted Paytm Payments Bank from accepting fresh deposits and doing credit transactions after February 29.

Paytm’s fortunes have significantly changed in the last one week. According to Bloomberg data, One 97 Communications stock had 9 ‘buy’ calls and 5 ‘hold’ calls on January 30, with consensus target price of Rs 960. Now, it has 6 ‘buy’ calls, 4 ‘hold’ and 5 ‘sell’ ratings after the RBI decision with brokerages’ consensus target price cut to Rs 740.

On February 6, Paytm closed at Rs 452.8, up 3.26 percent from the previous day’s close.

Retail investors must avoid bargain buying into Paytm stock

Vikas Gupta, Omniscience Capital CEO and Chief Investment Strategist, warned retail investors not to jump into buying Paytm stock yet just because it has fallen 40 percent. He warned them not to have another ‘Yes Bank scenario’.

It could be considered as an investment choice for sophisticated investors who can track the communications coming out of both the RBI and PayTM and understand, interpret and infer appropriately from those communications, he said.

If Paytm could successfully migrate the wallet business to other banks, it could keep most of the wallet customers without huge customer loss and it won’t have a long-term impact on the company, according to Gupta.

Paytm outlook uncertain; valuation attractive, but things could get worse too

But, what about investors who already own Paytm stock? “People who already have Paytm in their portfolio need not panic and book loss now, because it is trading at juicy valuations, assuming that the overall business comes back to the original levels, albeit in partnership with other banks,” he explained.

Gupta added that things could get even worse for Paytm. It could be suitable only for investors who put a limited proportion of their portfolio into the stock, and who have a good risk appetite.

Meanwhile, Bernstein has given an outperform call on Paytm with target price of Rs 600 as they expect the company to “successfully execute operational changes required to overcome restrictions”.

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