Additional fund requirement might have fuelled the fall in Paytm stock

Sources said that the margin funding book for the Paytm stock stood at close to Rs 250-300 crore before the carnage started. What caused precipitous selling was the call by some brokers for additional margins, not just for Paytm stock they were holding but also other outstanding positions

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Coming on the heels of the high margin requirements for trades ahead of the budget, brokers’ call for additional collateral following the Paytm rout may have exaggerated the fall in the stock, traders and brokers Moneycontrol spoke to said.

The Paytm stock has been in free fall for the past three days losing more than 42 percent in value before recovering 3 percent. The stock ended at Rs 452.80 on February 6. Since February 1, the stock has lost close to 40 percent on concerns over loss of business because of RBI curbs.

Sources suggested that the margin funding book for the Paytm stock on NSE stood at close to Rs 250 crore to Rs 300 crore before the carnage started. What caused precipitous selling was the call by some brokers for additional margins, not just for the Paytm stock they were holding but also their other outstanding positions.

Not exploring legal options, says Paytm Payments Bank

This unexpected demand came on account of two reasons. A number of brokers decided to maintain high margins ahead of the Interim Budget anticipating higher volatility. With Paytm stock plunging, there was fear of a wider market rout with uncertainties around global cues as well. While some of them reduced the margin requirement post-budget to ‘normal’ levels, others continued with higher margins. “This could have also helped offset some losses caused by Paytm margin calls,” sources said.

HDFC Securities’s Managing Director and Chief Executive Officer Dhiraj Relli confirmed to Moneycontrol that they are in a comfortable position as the clients they reached out to promptly paid up extra collateral for Paytm.

The executive of a tech-based discount broking firm, who did not wished to be named, also said that clients were asked to either give margin or unwind position as part of regular risk management policies.

5X jump in Paytm employees looking for jobs, ‘safe pastures’

For clients who were not able to cough up extra margin, the position would have either been squared off or collateral was sold, said Trivesh D, Chief Operating Officer of Tradejini, a Bengaluru-based broking firm.

What is Margin Trading Facility?

MTF is similar to a BNPL or Buy Now Pay Later kind of arrangement where investors borrow funds from their brokers to purchase stocks. Not all brokers offer this feature.

For instance, a client pays only Rs 25 but is able to buy stocks worth Rs 100. It is a product for the cash segment, and brokers charge anywhere between 7 percent to 21 percent on the borrowed funds.

While the norm is 25-30 percent, brokers Moneycontrol spoke to said that every stock has a different margin requirement and companies keep tweaking the number based on volatility.