Companies issue IPOs or Initial Public Offerings to raise funds from the market. These IPOs are launched in the primary market at a special price. Investors keep a close watch on companies with high potential of future performance to grab IPO offers when they are declared. So, a question that obviously arises is, how are the IPOs that were launched in 2019 are performing in 2020.
As an investor, your portfolio must contain IPOs but to understand how and when to include them, you must learn the basics of how to invest in the share market.
One of the basic strategy adopted by most traders is to invest when the market is falling. In the current situation, the global economy is showing signs of slowing down. The situation in India is no different. But, you must also understand what is causing the market to fall.
A market can fall for many reasons. Among these economic cycles, political or economic policy changes, company performance, or sector performance are few of the reasons that can alter investor sentiment. Right now, the worldwide pandemic condition is causing the global market to crash.
As a result, the Indian stock market is spiralling downwards too as investors are withdrawing from the market to secure their capital investment.
Countrywide lockdown following COVID-19 lockdown is the reason that market has fallen so dramatically, and even the stock price of well-established companies have suffered.
If you follow the recent newspaper headlines, most will claim that the market is in a state where you can plan entry in it. But what should be your stand? It is true that after a recession, the economy has always bounced back. We can expect the same thing to happen this time as well. But currently, the investing community globally are trying to find out the bottom — the least the indices can go — but all of it depends on the spread of the virus. Companies have been hit hard, and it has also impacted upcoming IPOs, which are delayed in many cases.
So, why are some newspapers claiming that IPOs are a safe-heaven for investors in the current situation?
Well, it is partially true; much depends on the business model of the company. You might have observed that technology stocks have performed better during the last few months. This is because the lockdown post-pandemic is less likely to hit the tech companies. Similarly, pharma stocks and telecom stocks are better placed to perform well, owing to the increased demand for such services.
But should you invest in IPOs or stocks? And, how have the 2019 IPOs done so far?
Well, Initial Public Offering (IPO) comes at a stage when a company decides to go public. Since it’s an important decision by the management, a lot of work goes into it, and such a decision is taken only when the company is reasonably sure of its growth potential.
Also, IPOs are often discounted to attract a certain level of enthusiasm among investors. IPO investors look to get in early and reap the benefit. For instance, some of the IPOs that were launched last year performed great during the initial days, but the lockdown announced damaged the share price significantly. However, much to the pleasure of the investing community, some of these stocks are still trading significantly higher than their IPO price. A lot depends on sectoral performance as well.
Like, the hotel industry has bore the brunt of the lockdown. Stocks of several hotels are currently trading below their issue prices. Travel and tourism businesses across the world have also suffered as governments are trying to limit the spread of COVID-19. Cinema theatres, restaurants, airlines and other amusement parks are shut down. Some financial institutions have also watched their share prices to dip as the pandemic has curtailed volume of financial transactions.
Some of the stocks from reputed companies are currently trading at 52-weeks low. Therefore, it may be derived that the performance of the 2019 IPOs has been mixed. While most have fallen off their highs earlier this year, some have even fallen below their list price. However, some of them have remained resilient too.
COVID-19 pandemic has caused the businesses to change in a sudden and significant manner. The outlook of the investing community has also altered. While investors are flocking to technology, telecom and pharma stocks, broad-based recovery in the market still depends on the virus. The level of uncertainty is already being compared to the 2008 global financial crises.
Globally, investors are more cautious than ever. Companies that have been forced to shut shops are laying off, but at the same time, some countries have reported a decreasing trend in the virus cases. The cases and the lockdown dates will, to a major extent, decide the direction of the market. As far as the Indian markets are concerned, we can say it is getting back to rhythm slowly. But it will take some time to bounce back.