Paytm: Down 40%, Buy Now Or Wait? A Technical And Analyst Deep Dive

Paytm's stock has been on a wild ride, soaring to a 52-week high of ₹998 in October 2023 before plunging over 40% to its current level of around ₹600. This surprising swing has left investors wondering: should I buy Paytm now, or wait for further declines?

Paytm's once-soaring stock has hit an air pocket, deflating by a staggering 40% since its October peak. The past two months have been difficult, with November's 5% drop laying the groundwork for December's relentless slide. With eight out of nine sessions ending in the red, Paytm faces a critical challenge: recover investor trust before the downward spiral becomes a freefall.

Paytm's Fall Down: A Tale of Shrinking Loans and Corrupting Confidence

The dominance of small-ticket loans in Paytm's portfolio cannot be understated. These bite-sized BNPL offerings constitute over 50% of the company's total loan disbursements, making them a crucial revenue engine. Scaling them back significantly is akin to taking the fuel out of Paytm's growth machine, leaving investors questioning the company's ability to maintain momentum.

Paytm has limited experience in this arena, and the success of its new strategy joined factors like:

Building trust with banks and NBFCs: Paytm needs to forge strong partnerships and establish itself as a reliable credit distributor in the eyes of these financial institutions.
Navigating regulatory limitations: The larger loan market comes with its own set of regulations that Paytm needs to navigate effectively.
Attracting borrowers: Convincing consumers and merchants to switch from smaller BNPL loans to larger credit lines requires a compelling value proposition and effective marketing strategies.

Acknowledging the growing demand for larger loans, Paytm announced plans to target the ₹3 lakh to ₹7 lakh range, catering to both consumers and merchants. This move signals a departure from the small-ticket BNPL loans that dominated their portfolio, but also an attempt to diversify in a challenging landscape.

The target prices for the stock, ranging from ₹830 to ₹1,120, paint a picture of divergent opinions and underline the uncertainty surrounding the company's path forward. MOSL stands as a voice of measured optimism. While acknowledging the recent market jitters, they believe the reaction might have been an overblown response to a minor adjustment. The brokerage emphasizes that the change only affects a small portion of personal loans (4-5%) in the sub-₹50,000 category, with postpaid loans playing a negligible role in the overall loan book.

The brokerage's concerns lie with the longevity of Paytm's recent measures and the outlook for low-ticket unsecured loans, which formed a significant portion of their previous revenue stream. JM Financial has thrown a bit of cold water on the Paytm rally, revising its outlook and target price. They've downgraded their estimations for Paytm's future earnings, predicting a deeper FY25 loss and trimming their target price to ₹1,120.

While some brokerages like MOSL remain bullish on Paytm, others like Geojit are exercising caution. Taking a step back from the optimism, Geojit has downgraded the stock to a "hold" and adjusted their target price to ₹941, signifying a more modest potential upside of 57%.

While some like Jefferies remain staunchly bullish, maintaining their "buy" rating and revising their target price upwards to ₹1,050, others like JPMorgan and Goldman Sachs have turned cautious, downgrading their ratings to "neutral" and setting more conservative target prices. Morgan Stanley sits on the fence with an "equal weight" rating and a target price of ₹830.

Jefferies, the most optimistic, expects a 75% upside, while Morgan Stanley predicts a more modest 38% gain. JPMorgan and Goldman Sachs fall somewhere in between, suggesting potential upsides of 50% and 40%, respectively.

Brokerage houses have painted a diverse landscape of outlooks, ranging from cautious "neutral" downgrades to stubbornly optimistic "buy" recommendations, each accompanied by a target price reflecting their varying degrees of confidence.

Paytm's stock has been on a rollercoaster ride in 2023. After soaring from a 527 low to a 998 high, it's recently taken a nosedive, retracing to 61.8% of its Fibonacci retracement level. This technical indicator, coupled with a bearish "rising wedge breakdown," suggests further downward potential. Investors should be cautious, as the current technical picture paints a gloomy outlook for Paytm's immediate future.

While the broader market's recent 8% surge in Nifty might tempt bullish instincts, caution remains key. In this dynamic landscape, intelligent investors should adopt a wait-and-see strategy, monitoring Paytm's price at the crucial support zone of ₹600-620. This area could offer an entry point for strategic accumulation, provided technical indicators like the oversold RSI and slowing MACD reversal signal a potential pause in the decline.

Rohan Shah, a Technical Analyst at Religare Broking, paints a sobering picture of Paytm's recent plunge. After reaching a 52-week high of 998, the stock has tumbled 35%, negating its positive chart pattern and breaking below a key rising trendline. This bearish trend finds further confirmation with the price slipping below its long-term 200 DEMA, signalling weakness.

Rohan Shah warns of a breakdown below the 650-640 support zone, potentially sending the price tumbling towards 610-580. While oversold positions might trigger a temporary bounce, the 700-725 zone is expected to act as a strong resistance, slowing any significant upward movement. In short, Shah advises caution for Paytm, suggesting the bearish trend could extend unless the price finds strong support above the 650-640 zone.