The debate over mutual funds subscribing to initial public offerings with high valuations, such as Lenkart’s, may be missing key context, according to executives at fund houses, who said the focus shouldn’t be only on headline valuations but on whether these investments create value for unitholders.
At the Mint BFSI Conclave in New Delhi on Friday, DP Singh, deputy managing director and deputy CEO of SBI Mutual Fund, said fund managers invest only after conducting rigorous due diligence. “They know the value. They know the story. They have seen the financials and they have met the management,” he said.
Nilesh Shah, managing director and CEO at Kotak AMC, said people “need to sometimes use their common sense before commenting”.
“In this (Lenskart’s) issue, one of India’s most respected investors has put in money. And then there are people cribbing on social media whose track record of investment is fairly unknown,” Shah said.
He added that these questions could have been asked if only mutual fund managers had invest in Lenskart’s IPO. “But if 147 institutional investors applied for the issue (putting in ₹3,268 crore as anchor investors), some benefit of doubt should be given to fund managers,” he said.
Sundeep Sikka, executive director and CEO of Nippon Life India Asset Management, said, “If mutual funds have taken a wrong and even if you call exit you will be punished.” He added that those questioning mutual funds should consider how many retail investors may be in losses after investing in such IPOs.
38% increase
The increase in the number of mutual funds investing in IPOs at high valuations comes at a time when India’s secondary markets are trading at rich valuations, pushing more funds to explore IPO investments in search of better returns.
In the 10 months to October, mutual fund investments in IPOs jumped 38% to ₹25,966 crore compared with the same period last year, according to data from Primedatabase.com. The share of mutual funds in the total funds raised through IPOs has also risen to 20% from 18% a year ago.