US pandemic stocks are coming home to roost

US pandemic stocks are coming home to roost

let’s start with a little math. Peloton’s stock was valued at ~$27 on March 1, 2020. by December 31, 2020, it was at ~$150 up by around 450%. but then things changed. the stock began slipping downwards. it is ~26% down since then. it’s not just Peloton. it’s also Zoom, Teamviewer, Asos, Just Eat, and more. but that’s the US, what about India? Tata Motors, last month was trading at ~ Rs 308, during that time, it dropped to ~₹284 before going up to ₹307 and now dipping into the low ₹290s again. not just that, Lupin, the pharmaceutical giant, is trading 18% down in the last month. something is afoot. 

do you see a connection? all these companies were heroes during the lockdown and were labeled pandemic stocks. but these pandemic stocks are now being held to account.

there are three threads to pull here:

1. how did it happen?
2. why did it happen?
3. will it happen in India?

let’s start with India.

is this going to happen in India?

before moving to the crash, we should talk about how the BSE has been behaving. since March 2020, the BSE went from the 40,000-point range to 48,000 in December and is beyond 55,000 now. its travel direction has been upwards. in fact, Indian benchmark indices are at a peak, and tech stocks are among their biggest drivers. to give you an example, Zomato is 77% higher than its list price. the share price of Infoedge, which is the parent company of Naukri, is around ₹5,500. almost twice what it was in March 2020. the likes of TCS, Wipro and Infosys have been climbing the charts. 

so, will the bull rally ever end? for some it has. Lupin, said to be one of Rakesh Jhunhuwala’s favourite stocks, slid 17% in a matter of seven days. the reason? the company couldn’t meet earnings expectations. Tata Motors’ stock price has been on a roller coaster, too, since it announced an expected fall in sales due to the chip shortage. some companies, which carried pandemic risk, also saw huge fluctuations in their journey. a good example is ICICI Lombard. it fielded claims of over 5,000 pandemic victims. this resulted in lower profits and investors sold their holdings in a hurry. 

this creates another layer that is important to ask. if investors have been so sensitive to missing sales targets and shrinking profits, how will they react to the slew of tech startups that are planning to list? the likes of Paytm, for example, have not made a profit in its lifetime and even saw its revenue shrink in the last fiscal. 

one reason many stocks are still riding IPO headwinds is the influx of foreign capital because of bailouts. but with the FED set to turn off the tap soon because of vaccine-led recovery, things may slow down in India as well. 

what’s the pattern in the US

the dream run for some listed tech startups in the US has hit a bump in the road. after the turn of the year as vaccines were introduced, and people began spending more on leisure activities and elsewhere, many expected these stocks to lose momentum . however, a prolonged rollout program, along with multiple waves of infections, kept the situation as it was in 2020. except for one significant change. the stocks were now at twice or more the price they could be bought a year ago. this meant that people became selective about picking their winning horses, and ruthless about exiting their investments on the others. 

consider, for example, Asos, whose stock dipped 18% on the announcement of its April-June quarter results. or Teamviewer, whose stock hit the lower circuit of 10% on the same. the Logitech stock suffered a 9.9% single-day drop, while Just Eat Takeaway took a 9% hit.

Peloton's stock dipped nearly 50% over a few days, courtesy of a run-in with regulators over faulty equipment. although it has recovered a bit since. meanwhile, Zoom, which has managed to grow its revenue with every passing quarter, is currently sitting on a not-so-handsome reward — a 3% rise in its stock in 2021. things look difficult for these stocks right now.

back to India

Zomato, so far, seems to have bucked the trend. it registered a larger loss in its quarterly result than when it listed, but the stock price was unchanged. maybe Indian tech stocks will buck the trend that non-tech stocks couldn’t. time will tell.