Fluctuations in the stock market are common, but the recent decline following the IPO boom at the beginning of 2024 has left investors concerned. Around 40% of the IPOs launched in 2024 are trading below their issue prices. Many stocks that were the centre of attraction during their listing are now turning into loss-making deals for investors. The current situation has made it difficult to determine whether this is a market correction or a warning of a market crash.
In this article, we will understand the current situation, the reality of the IPO market, and strategies for investors going forward.
What’s Happening?
At the start of 2024, the Indian market saw an IPO boom. In January alone, 24 companies launched their IPOs, and 87% of them received more than 100 times subscription. Investors showed great enthusiasm, and several companies’ shares performed well during the listing. However, this rally did not last long.
Stocks of these companies, which gave a good return at the time of listing, are now trading lower.
Out of the 91 companies listed in 2024, about 40% are trading below their issue prices. Similarly, 50% of the companies that raised capital through QIP (Qualified Institutional Placement) are also seeing their stock prices drop below their issue prices.
Reasons Behind the Decline in IPO and QIP Stocks
According to MoneyControl, the decline in the stocks of recently listed IPOs and QIPs is directly related to the secondary market’s condition. After reaching an all-time high in September last year, the benchmark indices have either been declining or trading sideways. This situation is impacting the performance of newly listed shares.
Another major reason is the aggressive offer prices of these IPOs and QIPs. Retail investors often invest in IPOs with the hope of listing gains. However, once this game is over, the premium on shares starts to decrease. Moreover, after a month of listing, when the lock-in period for institutional investors ends, the supply of shares in the market increases, leading to a fall in stock prices.
Is This a Correction or the Beginning of a Major Decline?
It’s difficult to answer this question right now, but several signs suggest that this could be just a temporary correction. Goldman Sachs’ analysts have warned that the U.S. stock market might face a significant decline in 2025. Given the rally in recent months, this correction seems almost inevitable. However, it is still unclear whether this decline will be temporary or have a long-lasting impact on the market.
If this happens, Indian markets could also be affected. Global investors may pull out of the U.S. market, leading to increased volatility in emerging markets. In such a case, Indian investors must stay cautious and keep a close eye on market trends.
What Does This Mean for Investors?
In 2024, India achieved a historic milestone in the IPO sector. More than 332 IPOs have been listed in 2024, including 81 from the mainboard and 236 from the SME segment. This record number has helped India secure the top spot globally in IPO volumes, surpassing both the U.S. and Europe. India has listed twice as many IPOs as the U.S. and 2.5 times more than Europe.
However, amid this surge, investors need to stay cautious. Instead of investing in every IPO, it’s essential to thoroughly understand the fundamentals and valuations of the companies. Stocks that possess a strong business model and a better balance sheet during a downturn could offer good returns in the long run. Therefore, it’s crucial to have the right strategy and patience when investing.
What’s Next?
According to CNBC, Pramod Gubbi, co-founder of Marcellus Investment Managers, believes that the Indian stock market is currently undergoing a cyclical consolidation, which is a natural process following strong growth over the past four years. This should be seen as a healthy correction.
If this decline results in improved valuations, it could attract new investors who were previously hesitant to enter the market due to high valuations. Therefore, despite short-term volatility, this correction could present an opportunity for long-term investors.
*The companies mentioned in the article are for information purposes only. This is not an investment advice.
*Disclaimer: Teji Mandi Disclaimer
