Mutual Funds Defend IPO Investments Amid Valuation Debate

Mutual Fund Executives Weigh In

A recent debate has sparked over mutual funds investing in initial public offerings (IPOs) with high valuations, such as Lenskart's. However, executives at fund houses argue that the focus should be on whether these investments create value for unitholders, rather than just looking at the valuations.

Due Diligence is Key

According to DP Singh, deputy managing director and deputy CEO of SBI Mutual Fund, fund managers conduct rigorous due diligence before investing. This includes reviewing financials, meeting with management, and understanding the company's story.

Nilesh Shah, managing director and CEO at Kotak AMC, emphasized the importance of using common sense when commenting on investment decisions. He pointed out that respected investors have also put money into Lenskart's IPO, and that 147 institutional investors applied for the issue, investing ₹3,268 crore as anchor investors.

A Matter of Perspective

Sundeep Sikka, executive director and CEO of Nippon Life India Asset Management, noted that if mutual funds have made a wrong investment, exiting the investment would also result in punishment. He suggested that those questioning mutual funds should consider the potential losses of retail investors who have invested in such IPOs.

Increased Investment in IPOs

The number of mutual funds investing in IPOs at high valuations has increased by 38% in the past 10 months, with investments totaling ₹25,966 crore. This surge in investment comes as India's secondary markets are trading at rich valuations, driving funds to explore IPO investments for better returns.

The share of mutual funds in the total funds raised through IPOs has also risen to 20% from 18% a year ago. As the market continues to evolve, it's essential to consider the key trends and factors driving mutual fund investments in IPOs, including initial public offerings, stock market trends, and investment strategies.