Explained: Why Paytm shares fell 5% in early trade

Shares of One97 Communications Limited, the parent firm of digital payments firm Paytm, fell 5 per cent at the start of the trading session on Thursday.

The shares were trading at a low of 4.24 per cent to Rs 327.65 at the time the article was being written.

The development follows the Enforcement Directorate (ED) initiating a case against Paytm's associate, Paytm Payments Bank, for violation of rules under the Foreign Exchange Management Act (FEMA).

However, Paytm provided clarification regarding media reports suggesting that the Enforcement Directorate (ED) had registered a case against Paytm for violating FEMA regulations.

Paytm stated that it has consistently furnished the necessary information, documents, and explanations to the authorities as per their requirements.

It highlighted that Paytm Payments Bank Limited does not engage in Outward Foreign Remittance.

"We would also like to clarify that our associate Paytm Payments Bank Limited does not undertake Outward Foreign Remittance. We have always made and will continue to make disclosures with our obligations under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015," said Paytm in a press release.

Despite Paytm shares having shown a slight rebound on Wednesday, settling above the day’s low, the news of the new ED investigation into its affiliated payments bank appears to have unsettled investors.

Paytm's stock has plummeted over 52 percent in the span of a month. Over the past six months, the company's shares have experienced a staggering decline of over 60 percent.

The biggest drop in Paytm's stock price occurred following the Reserve Bank of India's imposition of strict regulatory measures against Paytm Payments Bank, citing ongoing non-compliance issues.

The RBI has directed the payments bank to halt certain critical operations starting March 1, sparking anxiety among both Paytm users and investors.