If you are a consumer, you have experienced the power of consumer technology. You can order food, grocery or financial services like banking, investing, insurance on the tap of your smartphone.
As an investor, for the first time, you are experiencing the impact of consumer technology on the market sentiment.
Last week, we discussed the information wealth put out in the public domain due to the Zomato IPO. As investors put their bids for their interest in the IPO, there is a sharp divide between the opinions.
Like large foreign institutional investors and wealthy investors,those in favour have spoken by bidding for Zomato shares.
The institutional and non-institutional portion of Zomato has received an overwhelming response. However, the employees’ portion is undersubscribed thus far.
Noted industrialist Harsh Goenka took to Twitter to highlight the Rs 3,000 crore loss of the company amidst record subscriptions to the IPO offer.
As the Zomato IPO story plays out, last week, One97 Communications, the company that owns Paytm, filed the draft red herring prospectus with the Securities and Exchange Board of India or Sebi.
Just like Zomato, Paytm is yet to show profits. That is the first bit of information to note. Like Zomato, Paytm has a more expansive and more enormous army of institutional and individual investors looking to cash out partially or fully.
Most of these investors have funded the growth in these two companies and helped them build a business that is all set to tap into future growth.
The Zomato and Paytm IPOs fundamentally ask you to ignore the past performance and focus on future opportunities. This column will continue to emphasise the importance of the wealth of information as a focus for new investors.
The IPO documents give interesting insights into the payment services business and the ecosystem that Paytm and Zomato have built over the years.
The argument is about the future market opportunity. So, here are some data points from the IPO document of Paytm:
Paytm has 33.3 crore total users, in India as of March 2021. Out of these, 11.4 crore transacting users each year. That means those many people use Paytm for payments each year.
Financial services is a focus area for Paytm. India’s household debt is just 11% of GDP against 75% in the US as of 2019. That presents an opportunity for personal loans. While Paytm has a payment bank licence, it cannot lend money to you directly. However, Paytm sells loans for other financial institutions through digital channels.
The penetration of credit cards is merely 4% in India compared to 329% in the US and 53% in China. That means only 4 out of 100 Indians use credit cards as of March 2021.
Insurance premium as a percentage of GDP is 3.8% in India versus 11.4% in the US. There is scope to sell more life and non-life insurance.
India’s stock market participation is only 3%. That means 3 out of 100 people invest in the stock market directly or indirectly through mutual funds. It is 55% in the US.
Digital channels have picked up significantly. Between 55% to 65% of the incremental sales are happening through the channel. That is likely to be over 75% in the next five years, according to the offer document.
What can you do
Just as Paytm is readying itself for an IPO, the government has initiated the IPO of The Life Insurance Corporation of India. It is looking to engage bankers soon for the biggest public listing of any company.
With such large ticket IPOs on the anvil, stock markets may witness a flat trend as a sizeable chunk of the institutional money gets committed to these companies.
You may want to wait for the performance of these stocks after listing. If you strongly believe that prospects are good and align your investments to these companies, you may want to apply for the IPO.
However, you should continue your investments through systematic investment plans in the equity segment. Your funds would own these stocks on your behalf at some stage anyway.
(The author is editor-in-chief at www.moneyminute.in)