We all read about different companies making their innings with their IPOs (Initial Public Offerings). There is branding, research analytics, ratings, speculations and GMP (Grey Market Premium). But is it all done, once all of these have passed, and the company is listed?
A major deal starts from the day a company is listed in the secondary market. While the IPO process itself generates considerable buzz, the real story often unfolds post-listing. Here’s more on the post-IPO investor story.
Raising The Curtains For investors
A company IPO marks the transition from a privately-held entity to a publicly-traded one with a primary market launch. Post launch, the company gets listed for trading in the secondary market. While investors might be looking for trading this stock from their best trading platform, understanding the factors that influence a company’s performance after its IPO is crucial for both investors and the company itself.
The Post-IPO Landscape
With entry into the secondary market, the company lists on the exchanges, NSE and BSE, thus entering a new phase. This new phase is characterised by increased scrutiny, heightened expectations, and a dynamic market environment. With every moment of trade, the stock price is tracked, analysed and traded. It is open to influences from economy, politics, global contagion, and the market itself. Several key factors come into play, shaping the company’s post-listing trajectory:
Market Sentiment And Investor Expectations
When investors open demat account in an app, they are allowing the news, current stock movements and volatility to influence their sentiments. They are also in turn contributing to the overall market sentiment. So, here the initial market reaction to an IPO is often driven by a confluence of factors. It is a combination of the information we get, analyse and perceive. It includes the company’s or business’s growth prospects, industry trends, and overall market sentiment. High investor expectations might lead to a strong listing gain, but they also set a high bar for future performance.
Company Performance And Financial Results
Every business aims for sustainable growth, resilient performance and sturdy market positioning. However, investor sentiments may or may not match with the company performance. This is because the market is said to thrive on speculation. One way to gauge the correlation between the two is through company results and the stock performance thereafter. For example, a company might have just made X% growth in revenue from operations, but still, the price of the stock might plunge if it doesn’t match the market expectations. Sustained growth and strong financial performance are critical to maintaining investor confidence. Companies therefore strive to deliver on their promises, execute their business plans effectively, and consistently report positive earnings.
Management Team And Governance
While working towards maintaining the upside can be a strong indicator, it is often fueled by efficient management and good corporate governance. A strong management team with a proven track record can be a driving force for navigating the complexities of a public company. Effective corporate governance practices, including transparency and accountability, are also crucial in building trust with investors.
Industry Dynamics And Competitive Landscape
Apart from investors trading on their stocks app, the stock is under the influence of its industry, sector and competition. The broader industry landscape could significantly impact a company’s post-IPO performance. For example, a company might be performing as per their annual targets, but might have not made considerable strides at a sectoral level. Or, a competitor brand might have just launched a more advanced product, service or technology. Therefore, factors such as technological advancements, regulatory changes, and competitive pressures can create both opportunities and challenges.
Domestic And Global Macroeconomic Factors
The market is susceptible to global contagion. We say so, because the sentiments of investors around the world are contagious. The impact investors have on each other goes beyond borders. Even domestically, policy changes, economic numbers like interest rates, employment numbers, production index and more play their role in determining market sentiment. Domestic political-economic conditions and geopolitical events can individually influence investor sentiment and stock market volatility. This can affect any listed stock in the market index, including the new entrants, through newly launched IPOs.
Analysing Post-Listing Performance
A fundamental indicator of post-IPO success can be linked to the stock price performance. A sustained increase in the stock price relative to the IPO price could signify strong investor confidence and positive market sentiment. Additionally, a significant increase in market capitalisation, which reflects the total market value of a company’s outstanding shares, could indicate a positive market valuation.
But there are more ways to analyse performance. Both technical and fundamental analysis play crucial roles in assessing post-IPO performance. Technical analysis involves studying historical price and volume data to identify patterns and trends. Analysts use various technical indicators and chart patterns to predict future price movements. Fundamental analysis, on the other hand, focuses on a company’s financial health, business model, and industry dynamics. By analysing factors such as revenue growth, profitability, and competitive advantage, fundamental analysts can assess a company’s intrinsic value and potential for future growth.
Consistent growth in Earnings Per Share (EPS) is a crucial metric for assessing a company’s financial health and future prospects. Strong EPS growth demonstrates the company’s ability to generate profits and reinvest in its business. For companies that pay dividends, the dividend yield, which measures the annual dividend per share as a percentage of the stock price, can be an attractive factor for income-oriented investors.
Conclusion
While an IPO can be a transformative event for a company, it is essential to remember that it is just the beginning. For an investor, it could be related to the first step of opening an online trading app. As the trading success depends on a number of factors, so does the success of a newly-listed company. Sustained success in the public markets requires a long-term commitment to delivering value to shareholders, executing sound business strategies, and adapting to changing market conditions.
Discover everything about IPOs and invest with HDFC Sky.
Follow our WhatsApp channel
