RBI action against Paytm: What would be mutual fund managers’ reaction?

The Reserve Bank of India’s (RBI) ban on Paytm Payments Bank on accepting fresh deposits and making credit transactions, is expected to put pressure on the shares of the company, thus impacting the mutual fund schemes holding the stock.

The central bank in a press release on January 31, said, “No further deposits or credit transactions or top-ups shall be allowed in any customer accounts, prepaid instruments, wallets, FASTags, NCMC cards, etc. after February 29, 2024, other than any interest, cashbacks, or refunds which may be credited anytime.”

The central bank said no other banking services like fund transfers and UPI facilities should be provided by the bank after February 29.

Nirav Karkera, Head of Research at Fisdom, sees a big negative impact on the stock in the upcoming trading sessions.

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“Outright, the business operations have been suspended. However, it is expected that Paytm will resolve the issues as RBI’s notice has come on the back of a comprehensive system audit, and this is part of a supervisory action,” said Karkera.

On mutual funds’ reaction to the RBI ban, Karkera added, “Post-facto dropping the stock doesn't make sense, and mutual funds will choose to drop the stock if they believe that this is beyond remedy. Also, mutual funds allocation to Paytm is not too high.”

A mutual fund executive on condition of anonymity said, “We will hold on to our shares. We have a small holding, so even if prices fall -- and many do expect that -- it won’t impact our NAVs (net asset value). Also, we had purchased new-age companies’ shares at rock-bottom prices, so we aren’t into losses (yet) with Paytm. But we will have to wait till markets open and my fund managers will take the final call. Principally, I don’t foresee us selling shares.”

Data available with Value Research showed that 23 mutual fund houses via 69 schemes had invested Rs 1,994.74 crore in Paytm as of December end.

As per the latest AMFI categorization list, Paytm is a mid-cap stock with an average market capitalization of Rs 53,327 crore during the June to December period.

This shows that Paytm stock is not heavily-owned by mutual fund houses in India.

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Further, as per data available with Value Research, UTI Innovation Fund had the highest allocation to the stock at 4.80 percent as of December end. It was followed by Quant Teck at 3.26 percent, Quant Mid Cap 3.17 percent, Nippon India Innovation 2.96 percent and Mirae Asset Focused 2.90 percent.

In terms of amount invested, Mirae Asset Large Cap has the highest exposure to Paytm stock at Rs 430 crore, followed by Mirae Asset Focused Rs 269 crore, Quant Mid Cap Rs 134 crore, Nippon India Large Cap Rs 127 crore and Mirae Asset ELSS Tax Saver Rs 105 crore.

Note that these figures are for the December-end period, and allocations might have changed during the first month of this year.

When it comes to individual fund houses, Mirae Asset Mutual Fund had invested Rs 1,011 crore via nine schemes in Paytm as of December end.

Next, Nippon India Mutual Fund had invested around Rs 422 crore via nine schemes in Paytm.

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Meanwhile, Bernstein Research in a note to investors said, "This for all practical purposes, the above (RBI) notifications end the operations of
Paytm payments bank. This is a definite negative development and adds to the already heavy regulatory overhang on the business."