'Incidents like these are reminders': Anand Rathi Wealth's Feroze Azeez on Paytm crisis and mutual fund investors

‘Incidents like these are reminders’: Anand Rathi Wealth’s Feroze Azeez on Paytm crisis and mutual fund investors

Talking about the recent fiasco and risk associated with Paytm stock and mutual fund investment, Feroze Azeez, Deputy CEO, Anand Rathi Wealth, said investors should be cautious about these volatile situations and diversify their investment their portfolios.

“Investors need to understand that investing in direct equity can be risky. A diversified portfolio becomes important in this case. With 385 active mutual funds available, each fund invests different amounts in various stocks. For instance, many investors suffered losses by investing solely in Paytm shares. However, mutual fund investors, with their diversified approach, didn’t experience such significant losses. Even if the value of the stock dropped by 40%, mutual fund investors likely only saw a minimal 0.3 % – 1 % loss overall on the NAV of a fund which has an exposure,” Azeez said.

He added: “Incidents like these are reminders that venturing into stock as a retail investor is not easy. Mutual fund investors are structured investors and better positioned to ride such fluctuations, the loss they make will not make a huge dent as compared to the individual investors in stocks.”

Shares of One 97 Communications Ltd (Paytm) continued to fall in Friday’s trade a day after senior RBI officials that the action against Paytm was taken after persistent non-compliance from the fintech. Shares of Paytm have been witnessing a freefall on the stock market after the Reserve Bank of India (RBI) issued regulatory curbs on its banking arm, Paytm Payment Bank Limited, on January 31, and asked it to stop accepting deposits after February 29.

The stock recovered briefly earlier this week after it rose 13%. But investors lost patience in the stock after senior RBI officials said the action on Paytm Payments Bank was taken due to persistent non-compliance. Shares of One 97 Communications Ltd were trading at Rs 420.25, down by 6.01%, at 2.15 PM.

Small investors who chose to ride the momentum in Paytm shares in the past have been regretting their investment call. Not just retail investors, mutual fund investors are also confused about the current fiasco. A report in the Economic Times reported that 11 lakh retail shareholders, 514 FIIs and 97 mutual fund schemes have invested in One 97 Communications Ltd.

In the December quarter, shareholding pattern shows that Mutual Fund ownership in Paytm rose from 2.79% to 4.99% quarter-on-quarter. FII holding also rose 280 bps to 63.72% while retail ownership went up 457 bps to 12.85%.

Earlier this week, a note by brokerage house Fisdom Research highlighted that the mutual fund industry’s collective exposure to One97 Communication Ltd (Paytm) was at Rs 1,995 crore as of December 31, 2023, which is only 0.06 per cent of the total equity assets under management (AUM).

The report said 19 of the 23 asset management companies (AMCs) do not have One97 Communication Ltd (Paytm) in their portfolios. Additionally, nine of these 19 AMCs do not have any exposure to Paytm through their active mutual funds.

Equity funds with the highest allocation to One97 Communications Ltd. (Paytm)  are Mirae Asset Large Cap Fund, Mirae Asset-Focused Fund, Quant Mid Cap Fund, Nippon India Large Cap Fund, Mirae Asset ELSS Tax Saver Fund.

Equity funds with the lowest allocation to One97 Communications Ltd. (Paytm) as noted by the report are: JM Value Fund, Mahindra Manulife ELSS Tax Saver Fund, Bajaj Finserv Flexi Cap Fund, HDFC Large and MidCap Fund, Mahindra Manulife Flexi Cap Fund.

The Fisdom report further added that sectoral/Thematic funds with the highest allocation to One97 Communications Ltd. (Paytm) are: Nippon India Banking & Financial Services Fund, Nippon India Innovation Fund, Aditya Birla SL Digital India Fund, UTI Innovation Fund, Franklin India Technology Fund.

Sectoral/Thematic funds with the lowest allocation to One97 Communications Ltd. (Paytm) as noted by the Fisdom Research report are: 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, Quant Teck Fund.

As per the report, 19 AMCs with no exposure to Paytm are: 360 One, Axis, Bank of India, Baroda BNP Paribas, Canara Robeco, DSP, Invesco, ITI, LIC, NJ, PGIM, PPFAS, Quantum, Samco, Shriram, Sundaram, Taurus, Trust, Whiteoak.

“The mutual fund ownership has significantly increased for these new age-tech companies in hopes of generating profits. However, sudden regulatory changes are difficult to factor-in and such event risks are difficult to predict. however, investors can avoid such risks by diversifying their portfolios,” Azeez added.

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