Fintech major Paytm on Friday filed its draft red-herring prospectus with the market regulator for its Rs 16,600-crore public issue scheduled for this year. With a projected mop-up of $2.23 billion, the IPO would be one of India's biggest listings after that of the state-run miner Coal India in 2010.

Perhaps more interestingly, the Paytm issue is the latest in a slew of IPOs planned by app-based platforms in the country.

At the centre of this push is a retail frenzy that’s driving the markets at the moment, analysts say. “Retail part of subscriptions has increased a lot in the last one to one-and-a-half years. Each and every company wants to come out with the IPO now and cash in on this boom,” Vishal Wagh, Head of Research at brokerage firm Bonanza Portfolio, says.

Paytm gathered strength after the 2016 demonetisation. “It has, however, chosen to wait till the arrival of the retail frenzy to apply for its IPO,” he says.

There are multiple factors behind this retail frenzy. Higher liquidity in the market because of record low interest rates and stimulus measures and ease of banking through online procedures are the biggest growth engines.

The biggest beneficiary of this has been consumer-facing apps such as food delivery start-up Zomato, e-commerce company Flipkart and beauty brand Nykaa. Each one of these has taken time to achieve scale, build market share, and become a part of the consumer lifestyle. Since the onset of the pandemic, the visibility of these brands has only increased, with e-commerce turning into the backbone of the work-from-home set up in the new normal, providing systems, softwares, logistics and personnel to nearly all businesses. Now, they’re ready to take the big leap: Floating a public listing.

“India is seeing an influx of new-age companies. Such names have greater acceptance among common people, as they have used these services for a long time and feel a sense of conviction in their listings,” says Piyush Nagda, Head of Investment Products and Wealth Solutions at stock broking firm Prabhudas Lilladher.

The market ecosystem is at an inflection point, with tech firms eyeing the biggest gains, driving strength from yesteryears, he says. “The overall strength of the IT sector in India has also given investors more confidence. In the 1990s, when companies like Infosys went listed, the idea they brought was new. At that time, investors had more confidence in companies with physical assets. However, since then, they’ve become some of the biggest wealth creators in the country.”

Backing of big investment banks and venture capital firms have made the investors less risk-shy to go for these new-age companies. Paytm, for instance, is backed by investors like Berkshire Hathaway, China's Ant Group and Japan's SoftBank. Paytm filed its draft prospectus close on the heels of the Zomato public issue, which had fetched the company Rs 4,196 crore from a clutch of 186 anchor investors, just ahead of its listing. Giants such as Tiger Global and Blackrock Global Funds took large portions in it.

“Zomato’s bumper listing has definitely added to the positive sentiment,” says Hemang Jani, Group Senior Vice-President at Motilal Oswal Financial Services. “While the performance of Paytm’s IPO is likely to be driven by the eventual price and valuation, one thing is clear: there is going to be a lot of interest in it.”

What lies ahead? The Noida-based company, which is owned by One97 Communications, has already achieved two things: brand visibility and scale. According to its prospectus, it offers payment services, commerce and cloud services and financial services to 333 million consumers and over 21.1 million merchants, as of March 31.

Proceeds from the IPO, it said, would be used to further strengthen its payments ecosystem and for new business initiatives and acquisitions. While facing competition from the likes of PhonePe, Google Pay and the newbie Bharatpe, the market is big enough to drive gains for Paytm, analysts believe. By 2025, the volume and value of digital transactions in India are estimated to reach Rs 167 billion and Rs 238 trillion, respectively, according to a PwC report.

Like many other firms looking at public listings, Paytm too is loss-making at the moment, with a high level of cash burn. In 2019-20, it reported a net loss of Rs 2,942 crore and burned cash from operations worth Rs 2,385.3 crore. However, that is unlikely to be a huge cause for concern, says Jani. “The mindset has completely changed in the last twelve months.”

According to Nagda, investors have an increased risk appetite today as returns from traditional avenues have gone down. “They don’t want to miss the bus with big names. They recognise and understand that the cash burn for these companies will take some time to slow down. However, they’re choosing to focus instead on the market size and the scale of opportunities presented by them,” he said.

Investors also recognise that once such companies reach an inflection point, the profits could shoot up, he adds. The path to profitability might not be too far down the line, investment research firm Bernstein believes. It expects the fintech platform to be on track to break even in 12-18 months with increased financial discipline and targeted strategic investments. The next stage of growth for Paytm, it said, will be led by financial services, particularly delivering seamless credit tech products to consumers and merchants.

A public listing is also likely to invite greater regulatory scrutiny. Paytm is no stranger to it. In August 2018, for instance, the country’s central bank barred Paytm Payments Bank from opening new customer accounts and e-wallets for violation of know-your-customer (KYC) rules while on-boarding users. Fear of regulatory action from the RBI also pushed Paytm to stop servicing cryptocurrency exchanges through its payment gateway channels in May. How it handles the spotlight is left for investors to see. However, that is unlikely to be on top of their mind as of now and mar the prospects of the IPO, analysts say. They may be right.