Mutual funds trim Paytm stake for first time since IPO as retail exits deepen

India's domestic mutual funds have reduced their stake in One97 Communications Ltd., the parent company of digital payments platform Paytm, during the October-December quarter. This marks the first time mutual funds have trimmed their holdings since the company's stock market debut in November 2021, ending a three-year trend of steadily increasing exposure. Mutual Fund Holdings Decline The latest shareholding data reveals a notable shift in institutional investor sentiment. Mutual funds' stake in the fintech company decreased significantly during the quarter. Parameter: September Quarter December Quarter Change Mutual Fund Stake: 16.25% 14.34% -1.91% Among the prominent mutual funds that held stakes at the end of September quarter, Motilal Oswal MF, Nippon India MF, and Mirae Asset MF all reduced their positions during the December quarter. Bandhan MF, which was previously among the notable stakeholders, no longer appears in the shareholding list, indicating either a reduction below the 1% disclosure threshold or a complete exit from the stock. Retail Investor Exodus Continues Retail shareholders extended their selling streak, marking the seventh consecutive quarter of declining holdings. Their participation has dropped to the lowest level since September 2023. Retail investors, defined as those with authorized share capital up to ₹2.00 lakh, have been consistently reducing their exposure to the stock over nearly two years. Brokerage Outlook Remains Positive Despite the institutional selling pressure, several leading brokerages maintain optimistic views on the company's prospects. Goldman Sachs recently upgraded the stock to Buy from Neutral, significantly raising its price target to ₹1,570 from the previous ₹705.00, representing a potential 20% upside from current levels. The investment bank cited improving regulatory conditions, early gains in payments market share, clearer earnings visibility, and the phased return of key offerings as positive catalysts. These factors are expected to support revenue growth exceeding 20% in the medium term. Analyst Projections and Targets Multiple brokerages have expressed confidence in the company's growth trajectory: Brokerage: Rating Target Price Upside Potential Goldman Sachs: Buy ₹1,570.00 ~20% Jefferies: Preferred Pick ₹1,600.00 ~22% YES Securities: Add ₹1,400.00 - Emkay: - ₹1,600.00 - Axis Capital: Buy ₹1,500.00 - Jefferies considers Paytm its preferred pick in the fintech sector, highlighting rising option value across wealth, lending, and international segments. The brokerage views the company as being at an inflection point to scale new segments leveraging its distribution and customer base. Business Fundamentals and Growth Projections Ventura Securities highlighted the company's improved business position, noting achievement of profitability and strong revenue growth through operational and strategic shifts. The brokerage projects significant growth in key metrics: Monthly Transacting Users (MTUs): Expected to grow from 74 million in Q1FY26 to 95 million by FY28E Subscription paying device merchant base: Projected to increase from 13 million to 22 million over the same period Payment GMV: Anticipated to rise from ₹18.70 lakh crore in FY25 to ₹33.90 lakh crore by FY28E Axis Capital raised its FY27-28 EBITDA estimates by 33-46% following Q2 results, citing improved payment margins, scaling financial services, and tighter operating costs. The brokerage values the stock at approximately 41 times FY28 estimated EV/EBITDA, though it cautioned that deterioration in lending asset quality remains a key risk. Market Position and Monetization Potential The company operates one of India's largest offline merchant networks, with approximately 13 million devices including soundboxes and electronic data capture machines across small and large enterprises. It ranks among the top four online payment aggregators by gross merchandise value. Analysts see strong monetization potential as merchant relationships mature, particularly through cross-selling lending products and implementing price increases on devices and services. The company's pilot project to raise soundbox subscription fees from ₹100.00 to ₹129.00 has shown encouraging results, indicating pricing power in its core offerings. India's domestic mutual funds have reduced their stake in One 97 Communications Ltd., parent company of payments aggregator Paytm, marking a significant shift in institutional sentiment. This represents the first instance of mutual funds trimming their stake since the company's public listing in November 2021, ending a consistent pattern of increasing institutional ownership. Mutual Fund Holdings Decline The latest shareholding pattern filed with the Bombay Stock Exchange reveals that mutual funds now hold a 14.96% stake in Paytm at the end of the December quarter, down from 16.25% in the September quarter. This decline breaks a trend that had persisted since the company's market debut. Fund Name September (%) December (%) Motilal Oswal Midcap Fund 5.57 4.96 Nippon India Growth Midcap Fund 2.11 1.64 Mirae Asset Largecap Fund 1.66 1.56 Bandhan Large & Midcap Fund 1.04 N/A Among the prominent mutual fund holders, Motilal Oswal MF, Nippon India MF, and Mirae Asset MF all reduced their positions during the quarter. Notably, Bandhan MF's name no longer appears in the shareholding list, indicating either a reduction below the 1% disclosure threshold or a complete exit from the stock. Retail Investor Exodus Continues Retail shareholders, defined as those with authorized share capital up to ₹2.00 lakh, continued their selling spree for the seventh consecutive quarter. Their shareholding has dropped to the lowest level since September 2023, with small retail investors consistently reducing their positions since the June quarter of 2024. Stock Performance and Recovery Paytm shares experienced significant volatility, hitting an all-time low of ₹318.00 on February 16, 2024, amid concerns over Reserve Bank of India regulatory actions. However, the stock has since staged a remarkable recovery, reaching a 52-week high of ₹1,381.00, representing a 334% rebound from the record lows. The recovery was supported by easing regulatory concerns and positive developments, including Paytm Payments Bank securing final authorization from the Reserve Bank of India for its payment aggregator license, covering online, offline, and cross-border transactions. Current Valuation and Outlook Despite the substantial recovery, Paytm shares remain 40% below their IPO price of ₹2,150.00. Market participants are closely watching for the company's third-quarter results, which could serve as the next significant catalyst for the stock. Investor sentiment has been buoyed by expectations that the company may achieve profitability in the near term. We’re building Scanx - to help you express your trading & investing idea, to help you analyse the markets better. Stock Markets are the true indicator of the growth of any country's economy. We are bullish on India, we are bullish on India's prospects to be one of largest economies of the world. 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