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 the investment creates 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 rigorous due diligence. “They know the value. They know the story. They have seen the financials and they have met the management,” he said at the Mint BFSI Conclave on Friday, adding that research teams spend a lot of time evaluating a company. Singh added that mutual funds check if their investments create value for the unitholders or not.
Nilesh Shah, MD and CEO at Kotak AMC said that individuals need to sometimes use their common sense before commenting.
“In this issue, one of India’s most respected investors has put in money. And then there are people on social media who are cribbing whose track record of investment is fairly unknown,” Shah said.
Shah also said that the same individuals should have asked questions if only fund managers were investing in the IPO. But if 147 institutional investors applied for the issue, some benefit of doubt should be given to fund managers.
147 institutional investors participated as anchor investors in Lenskart Solutions and had raised ₹3268 crore ahead of the IPO.
Sundeep Sikka, ED 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 also added that if individuals are questioning mutual funds, how many retail investors would have invested in an IPO and maybe taken a wrong position.
Secondary markets overvalued
The increasing investments in IPOs at higher valuations comes at a time when the secondary markets are over-valued, leading to mutual funds pushing more money into IPOs in search of better returns as they continue to receive robust flows via Systematic Investment Plans (SIPs).
In the 10 months ended October, mutual fund investments in IPOs jumped 38% to ₹25,966 crore compared with the same period last year, as per data from Primedatabase.com. The share of mutual funds in total money raised via IPOs has also gone up to 20%, as against 18% a year ago.
