In an unusual move, DSP Mutual Fund released a public statement to clarify its investment rationale. “We invest when we have conviction across four dimensions — a scalable business, trustworthy promoters, strong execution, and valuations,” DSP said.
A closer look shows that fund exposure to such IPOs is minimal and strategically planned. If we take Lenskart as an example, HDFC Mutual Fund and ICICI Prudential Mutual Fund have invested around Rs 50 crore and Rs 25 crore, respectively, in the Lenskart IPO through the anchor allotment. These amounts represent less than 0.1% of their total assets under management of these fund houses.
Mutual funds, anyways, invest public money under strict regulatory and fiduciary frameworks. Anchor book participation, fund managers point out, is not driven by hype but by internal research models that evaluate long-term business potential.
“The rationale considers factors such as leadership position, market size, governance standards, and return metrics before committing to any IPO. Valuation is one among many parameters, but not the sole determinant. The decision also depends on how a new stock complements existing portfolio holdings,” said a fund manager of an AMC, who invested in the Lenskart IPO.
Lenskart’s Rs 7,278 crore IPO was oversubscribed 28 times despite its steep valuation, nearly 235 times FY25 earnings at the upper price band. Nearly 20 mutual funds including SBI MF, HDFC MF, ICICI Prudential MF, Kotak MF, Axis MF, and Aditya Birla Sun Life MF participated in the anchor round, joined by major insurance firms and global investors. Groww’s IPO, though not as aggressively priced, also attracted attention for its valuation multiple of 34–44 times FY25 earnings, higher than traditional brokerages like Angel One and Anand Rathi.”Also the critical factor is the construction of a portfolio where one scrip should not be so dominant as to impact the entire risk reward metric to retail investors” said another senior fund manager at a leading AMC, which manages around Rs 10 lakh crore in assets.Further, there is always a chance that these funds might reduce the exposure or completely exit the investment if the fresh data doesn’t match their earlier thesis. Retail investors may not be aware of this until fresh data is put out by companies every quarter or monthly updates from the AMCs.
Bharat Lahoti, Co-Head, Factor Investing, Edelweiss MF in an earlier conversation with ETMarkets said, “When listing day gains exceed our valuation targets, we may consider reducing exposure. Nevertheless, our investment philosophy prioritizes fundamental analysis over short-term market momentum.”
How do mutual funds go about anchor subscriptions?
Analysts say there are various parameters that the fund houses consider while raising their hands for the anchor allocation. These include the company’s business model, its leadership position in the sector, its right to win, moats of the business, the management quality, governance and the hard financial analysis which comprise of the trifecta of growth, margins, cashflows and return metrics.
“The fund also evaluates the fit of the stock in the overall portfolio and how it would add value to the returns / risk profile of the portfolio. The valuation (different from value) is based on factors like the market sentiment, margin of safety and the need to have the stock in the portfolio from a complementary perspective,” said Bhavesh Shah, Managing Director & Head – Investment Banking, Equirus Capital.
Shah also emphasized that Indian mutual funds continue to maintain valuation discipline.
“The funds, depending upon the outlook of the term of the holding they would envisage, generally take a view of the risk/ returns they would expect from the stock. Our experience says that the funds have been practicing a significant amount of valuation discipline, as indiscriminate pricing is not prudent for public money,” he added.
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