new-age IPOs worth investing in
First, What Are Long-Term Interest Rates? Long-term interest rates—such as the yield on the 10-year U.S. Treasury bond—measure the price of borrowing money for extended periods of time. They're typically shaped by: Expectations of inflation Central bank actions (such as Fed rate decisions) GovernmenRead more
First, What Are Long-Term Interest Rates?
Long-term interest rates—such as the yield on the 10-year U.S. Treasury bond—measure the price of borrowing money for extended periods of time. They’re typically shaped by:
- Expectations of inflation
- Central bank actions (such as Fed rate decisions)
- Government debt issuance
- World economic outlook
And whereas short-term rates are directly related to central bank actions (such as the Fed Funds Rate), long-term rates capture what investors believe about the future: growth, inflation, and risk.
Why Do Long-Term Rates Matter to Growth/Tech Stocks?
Let’s begin with a investing fundamentals rule of thumb:
- The value of a stock is the present value of its future cash flows.
- Here’s where higher rates enter the picture:
- As interest rates rise, future cash flows are discounted more and more.
- That is, those future profits are less valuable today.
And growth/tech stocks—many of which have huge profits years from now—take the biggest hit.
So when long-term rates increase, the math of valuation begins to work against such companies.
Why Are Tech and Growth Stocks Particularly Sensitive?
1. They’re Priced for the Future
Most growth stocks—picture companies like Tesla, Amazon, Nvidia, or high-growth SaaS companies—invest huge amounts today in expectation of grand rewards down the line.
Their valuations are constructed on the premise that:
- They’ll continue growing fast for years to come.
- Profits in the future will support lofty prices today.
But when interest rates go up, those “big profits down the road” are discounted more, so their current value (and thus their stock price) is less.
2. They Tend to Depend on Inexpensive Capital
Startups and high-growth companies frequently borrow funds or issue equity to drive growth. Higher interest rates result in:
- Borrowing costs are higher.
- Venture capital disappears.
- Capitalists insist on profitability earlier.
This can compel companies to reduce expenses, postpone expansion, or increase prices, all of which can hamper growth.
Real-World Example: The 2022-2023 Tech Sell-Off
When inflation surged in 2022 and the Federal Reserve hiked interest rates aggressively, we witnessed:
- The 10-year Treasury yield jump sharply
- High-growth tech stocks tank, with many dropping 40–70% from peak
Investors switch into value stocks, dividend payers, and defensive sectors (such as energy, utilities, and healthcare)
It wasn’t that Meta, Shopify, and Zoom were doing poorly. It was that their future profits counted less in a higher-rate world.
But It’s Not All Bad News
1. Some Tech Companies Are Now Cash Machines
The big-cap tech giants—such as Apple, Microsoft, Alphabet—are now enormously profitable, cash-rich, and less dependent on borrowed cash. That makes them less sensitive to rate moves than smaller, still-rising tech names.
2. Rate Hikes Eventually Peak
When inflation levels off or the economy decelerates, central banks can stop or reverse rates, reducing pressure on growth stocks.
3. Innovation Can Outrun the Math
At times, the force of disruption is compelling enough to overcome increasing rates. For instance:
- The emergence of AI is allowing businesses to create efficiencies that fuel growth—even in an elevated-rate world.
Some tech infrastructure plays (such as Nvidia) can be treated as a utility, not a bet.
What Should Investors Do?
Understand Your Exposure
Not all tech stocks are alike. A growthy, loss-making AI startup will act very differently from a cash-generation-rich enterprise software business.
Watch the Yield Curve
The slope of the yield curve (short term vs long term rates) will say a lot about what the market expects for growth and inflation. A steepening curve tends to be optimistic economically (favorable to cyclicals), but an inverted curve can portend issues down the road.
Diversify by Style
An average portfolio could have both:
- Growth stocks (for long-term growth)
- Value/dividend-paying stocks (to provide cushions against rate shocks)
The Bottom Line
Increasing long-term interest rates have the effect of gravity on growth stocks. The higher the rates, the greater the pull on valuations.
But this does not imply doom for tech. It means investors must:
- Recalibrate expectations
- Focus on quality
- And remember that not all tech grows in the same environment
Just as low rates fueled the rise of growth stocks over the past decade, higher rates are now reshaping the landscape. The companies that survive and adapt—those with real earnings, real products, and real cash flow—will come out stronger.
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Are New Age IPOs Worth Investing In? New-age IPOs: The new-age IPOs, or technology-driven companies that function on platforms, have witnessed tremendous investment interest over the last few years. The new-age IPO offers rapid growth and the disruption of conventional sectors through its associatioRead more
Are New Age IPOs Worth Investing In?
New-age IPOs: The new-age IPOs, or technology-driven companies that function on platforms, have witnessed tremendous investment interest over the last few years. The new-age IPO offers rapid growth and the disruption of conventional sectors through its association with the digital economy. However, their performance post-listing has been erratic, and an important question that arises here is whether new-age IPOs are actually worthy of investment or just high-risk stories?
Recent Developments in New-Age IPOs
New age IPOs are largely those which are based on digital platforms. The key characteristic of new age firms is that they are more concerned about market share and scalability as opposed to more traditional firms which are more concerned about profitability. It would be clear from above examples that the kind of firms which have come to the Indian market in the “food delivery,” fintech, “e-commerce,” logistics, “SaaS based” spaces are examples of firms belonging to this segment. Some prominent examples of firms which belong to this segment are Zomato, Paytm, and Nykaa.
The Core Investment Attraction
What new-age IPOs offer the most is the potential for growth. New-age companies target massive untapped markets and use technology to grow-big, fast. If achieved, these companies can establish powerful network effects, high brand recall, and high operating leverage.
There is also early access. As IPO investors, individuals can gain early access to companies that have the potential to influence consumer behaviors or business models over many decades. It may seem similar to early-stage investments in what are today global technology giants to investors with early access.
The Profitability Challenge
Amongst one of the most significant apprehensions associated with new age IPOs is that they are not profitable on a constant basis. A significant number of IPO-giving organizations are still posting losses. These organizations are of the view that as soon as they are able to create mass, their profits will not be a concern.
High customer acquisition costs, a focus on discounts for growth, as well as competitiveness could lead to a lag in achieving profitability. It is essential for investors to assess whether the company’s loss could be strategic, temporary, or structural.
Valuation: Growth Versus Reality
Valuation can be another pertinent consideration in this context. In general, new-age IPOs tend to be valued either by looking at future projections instead of looking at their present financial performances. Concepts like price/earning ratio can’t be applicable in such scenarios.
This means that stock valuations are sensitive to market sentiment. If market sentiment is optimistic, stock values can jump. But if market conditions become tighter, as in the case of increased interest rates, these stocks can see sharp corrections.
Governance and Business Model Risks
But, along with the numbers, the investors need to look at the quality of governance, transparency, and execution skills. A good idea is insufficient. The caliber of the management’s leadership in controlling expenses, adjusting the strategy, and communicating effectively with the investors matters a lot.
Viability in business model also raises questions. Certain businesses rely to some extent on financing or favorable markets. They may find difficulty in entering the profits phase if financing becomes costly or markets change.
Who Should Consider Investing?
New age IPOs may not be ideal for all investors. New age IPOs are generally more suitable for investors who:
However, for a more conservative investor who is interested in income or return on investment, conventional businesses could be more suitable.
A Balanced Perspective
The IPOs belonging to the new age are not wealth creators per se or concepts that should be shunned altogether as investment options. They lie at the point where innovation meets risk. While some will be able to develop themselves into a robust, profitable entity, others could end up struggling to remain justified by their valuation multiples.
It is all about selectivity. Investors need to sift through the hype, learn about the fundamentals, and have realistic expectations. If done with caution, innovative IPOs can have a limited but important role in an investor’s diversified portfolio.
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