Understand the rules of the game when you enter a highly regulated sector like financials: Ajay Bagga on Paytm

Ajay Bagga on market outlook, banks and Paytm saga

The Indian equity market may be poised for another rally before the general elections, even as the timeline for Fed rate cut gets pushed out to the second half of the year.

In an interview to Moneycontrol, market expert Ajay Bagga shares his perspective on the unfolding Paytm saga amid the recent regulatory actions by the Reserve Bank of India (RBI) targeting payments banks that have sent ripples through the fintech ecosystem, prompting investors to re-evaluate their positions. Edited excerpts:

What are your thoughts on the current market scenario and the likelihood of rate cuts from the Fed?

The current market scenario is marked by anticipation surrounding both domestic and international factors. While earlier expectations included the possibility of multiple rate cuts from the Fed, recent developments, including a robust US economy and clear messaging from the Federal Reserve suggest a shift in expectations.

The likelihood of rate cuts has diminished, with indications pointing towards no cuts until June or July. This adjustment in market sentiment, coupled with the upcoming elections, introduces a level of uncertainty regarding market movements.

Despite this, I see the potential for one more rally before the elections, that could drive markets to new highs. But once the new government is formed, a lot will depend on the full-year budget in July and what happens around there.

Should investors consider buying private sector banks amidst underperformance and liquidity issues?

While private sector banks currently face challenges such as underperformance and liquidity issues, there are underlying factors that make them attractive long-term investment prospects. Despite short-term setbacks, private sector banks are a long-term buy as they will be the suppliers of capital into a growth economy. Additionally, improvements in the balance sheets of PSU banks suggest broader opportunities within the banking sector despite their recent run up. Remember, PSUs are playing catch up after a decade's underperformance. Recently, government said that PSU banks have earned Rs 98,000 crore as against Rs 70,000 crore last year. That's the kind of re-rating on the balance sheet for PSU banks. So banks will continue to do well.

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

What's your perspective on the recent regulatory actions targeting Paytm Payments Bank and its impact on the fintech ecosystem?

The recent regulatory actions targeting payments banks reflect the importance of regulatory compliance within the fintech ecosystem.

As a highly regulated sector, financial services require adherence to strict standards to safeguard consumer interests and maintain market stability. While the specific implications of these regulatory actions are still unfolding, it underscores the need for fintech companies to navigate regulatory frameworks effectively. RBI would not take such a big measure without understanding the implications. It is one of the best regulators in the world. If you remember,  five payment banks licences were surrendered by the promoters on their own out of the 11 that were given.

The model itself is very difficult to make money on and, including say, a Vodafone and Pesa, which worked in East Africa, did not work in India. They gave back their licence. You can't really blame the regulator for this and we don't have enough information to make judgments. You know, the fintech guys are writing articles that RBI doesn't know the digital ecosystem. I don't think so.

Also read: Paytm jumps 10% to hit upper circuit after large trade of shares

So would you advise investors to stay away from the stock amid the ongoing regulatory scrutiny?

Yes I would... I don't want to comment on the company. It might be a great company, might be run by great people but when there's so much noise around it, it's fair to presume that it may not end anytime soon. So get all the information and then take a call. Don't go by what FIIs or brokerages are doing, do your due diligence, gather more information and then take a call.

Yes, maybe you missed this opportunity, no problem. Right now the problem is very big. RBI doesn't shut down banks, it asks other banks to take over. So, for the RBI to virtually shut down a bank there has to be a reason. Their decisions are well thought out and their big mandate is market stability. RBI will not make the market unstable.

Also read: RBI may cancel licence of Paytm Payments Bank

The start-up ecosystem in India is thriving despite risks because the country offers access to a vast consumer market, and presents lucrative opportunities for profit. Investors and stakeholders are drawn to this potential for financial gain rather than solely aiming to enhance our lives.

Therefore, amidst concerns raised by private equity entities and vested interests about regulatory actions impacting the start-up ecosystem, it's essential to recognise the underlying motivations driving participation in the market: financial gain within a robust consumer landscape.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.