Paytm Payments Bank Ltd (PPBL) faced a significant setback with the Reserve Bank of India (RBI) imposing restrictions on its operations due to rule violations. This has led to a ripple effect on the mutual fund industry, with brokerage house Fisdom Research shedding light on the collective exposure of mutual funds to One97 Communication Ltd (Paytm). This article delves into the mutual fund landscape, the exposure of various asset management companies (AMCs), and the circumstances that led to RBI’s intervention.
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Mutual Fund Exposure to Paytm: A Snapshot
According to Fisdom Research’s recent note, the mutual fund industry’s collective exposure to Paytm stands at ₹1,995 crore as of December 31, 2023. However, this represents only 0.06% of the total equity assets under management (AUM). The report highlights that out of 23 AMCs, only 19 invested in Paytm, while the remaining 9 have no exposure to Paytm through their active mutual funds.
a. AMCs with Exposures: The report identifies the AMCs with exposures to Paytm, showcasing the percentage of equity AUM invested in the company:
- Helios: 2.0%
- Mirae: 0.7%
- Mahindra: 0.6%
- Bajaj: 0.5%
- Quant: 0.4%
b. AMCs without Exposures: Fisdom Research lists 19 AMCs with no exposure to Paytm, including Axis, DSP, Invesco, LIC, Quantum, and Taurus, among others.
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Equity Funds: Allocation to Paytm
The report categorizes equity-oriented funds based on their allocation to Paytm, revealing the funds with the highest and lowest exposure.a. Equity Funds with Highest Allocation: Noteworthy funds with the highest allocation to Paytm include Mirae Asset Large Cap Fund, Mirae Asset-Focused Fund, Quant Mid Cap Fund, Nippon India Large Cap Fund, and Mirae Asset ELSS Tax Saver Fund.
b. Equity Funds with Lowest Allocation: On the flip side, funds with the lowest allocation to Paytm comprise JM Value Fund, Mahindra Manulife ELSS Tax Saver Fund, Bajaj Finserv Flexi Cap Fund, HDFC Large and MidCap Fund, and Mahindra Manulife Flexi Cap Fund.
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Sectoral/Thematic Funds: The Paytm Impact
Fisdom Research analyzes sectoral/thematic funds, examining their allocation to Paytm and identifying those with the highest and lowest exposure.a. Highest Allocation: Sectoral/thematic funds with the highest allocation to Paytm include Nippon India Banking & Financial Services Fund, Nippon India Innovation Fund, Aditya Birla SL Digital India Fund, UTI Innovation Fund, and Franklin India Technology Fund.
b. Lowest Allocation: Conversely, funds with the lowest allocation to Paytm, as per the report, encompass Aditya Birla SL ESG Integration Strategy Fund, Mirae Asset Banking and Financial Services Fund, Union Innovation & Opp Fund, Aditya Birla SL Banking & Financial Services Fund, and Quant Teck Fund.
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Paytm’s Stock Price Decline and RBI’s Intervention
The turmoil for Paytm escalated when the RBI intervened and imposed restrictions on Paytm Payments Bank. The company witnessed a staggering 36% decline in its share price from January 31st to February 2nd, 2024. The central bank directed PPBL not to onboard new customers, cease further deposits, and refrain from credit transactions after February 29, 2024.
a. Root Causes: The RBI’s action stems from persistent non-compliance and ongoing material supervisory concerns. Reports suggest that concerns related to money laundering and substantial transactions between Paytm and its banking arm led to the regulatory intervention.
b. Financial Impact: Paytm, in a regulatory filing, acknowledged the potential worst-case impact of ₹300-500 crore on its annual EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) as a result of these regulatory measures.
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Conclusion: Implications and Investor Caution
The unfolding events surrounding Paytm’s regulatory challenges and the subsequent impact on mutual fund exposures underscore the interconnected nature of financial markets. Investors are advised to exercise caution, especially in light of the regulatory scrutiny faced by Paytm.
It’s crucial for investors to stay informed, seek advice from certified experts, and assess the potential implications on their investment portfolios. As the situation evolves, the broader implications on the mutual fund industry and the fintech sector in India remain subjects of keen observation.
Disclaimer: The information and views presented in this article are based on individual analysts’ or brokerage houses’ perspectives and do not necessarily represent the views of Mint. Investors are encouraged to conduct thorough research and seek professional advice before making investment decisions.
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