DSP Mutual Fund Defends Investment in Lenskart IPO Amid Valuation Concerns

DSP Mutual Fund has defended its decision to invest in Lenskart’s initial public offering after facing criticism on social media and from several investors over the eyewear retailer’s valuation.

The fund house said it usually does not comment on individual stocks, but decided to clarify after questions and concerns were raised online about its participation in the IPO’s anchor allotment. Several users on X criticised the offer price and called for boycotts of mutual funds that bought shares in the issue.

Investment Strategy

In a post on X, DSP said it remains disciplined in its approach to IPOs and invests only when it has conviction across four factors — a strong and scalable business, trustworthy promoters, demonstrated execution, and valuations. IPO investment strategy is crucial for mutual funds to make informed decisions.

“It is rare to find all four perfectly aligned at the same time. In the case of Lenskart, we like the first three very much,” DSP said. “On valuations, we believe businesses associated with retail and e-commerce are trading expensive, including this specific business.”

Valuation Concerns

The fund said it does not usually hold cash in most of its portfolios and made the investment by trimming a slower-growing, similarly expensive position. It added that it sizes positions carefully when valuations are stretched. Valuation concerns in IPO are common, and investors should be cautious when investing in overvalued stocks.

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Additional Insights

The Lenskart IPO: More Than Just an Issue, It’s a Market Referendum

The Indian primary market is buzzing again, and at the centre of the storm is a name synonymous with vision care disruption: Lenskart. But its much-anticipated Initial Public Offering (IPO) has become less about the company’s growth story and more about a raging debate on valuation. The controversy escalated when DSP Mutual Fund, a respected name in the Indian asset management industry, publicly defended its decision to invest as an anchor investor, following a torrent of criticism from retail investors on social media.

This isn’t just another corporate event; it’s a litmus test for the market’s appetite for high-growth, high-valuation new-age companies. It pits the long-term, analytical approach of institutional giants against the value-conscious, often skeptical, sentiment of the individual investor. In this deep dive, we’ll dissect the entire saga: the Lenskart growth machine, the valuation concerns that triggered the backlash, DSP’s detailed four-factor justification, and most importantly, the crucial lessons for every Indian retail investor watching from the sidelines.

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Decoding the Hype: Why is Lenskart’s IPO the Talk of Dalal Street?

To understand the controversy, one must first understand the company. Lenskart isn’t just an eyewear retailer; it’s a vertically integrated, technology-driven behemoth that has fundamentally changed how Indians buy glasses.

From Online Disruptor to Omnichannel Titan

Founded in 2010 by Peyush Bansal, Lenskart started as a pure-play online platform, a radical idea in a market dominated by unorganized, neighbourhood opticians. The challenges were immense: how do you convince someone to buy a product as personal as spectacles without trying them on? Lenskart’s answer was technology.

• 3D Try-On Technology: Its augmented reality feature was a game-changer, allowing customers to virtually try on hundreds of frames from the comfort of their homes.
• Home Eye-Checkups: It brought certified optometrists to the customer’s doorstep, breaking another major barrier to online adoption.
• Vertical Integration: Crucially, Lenskart controls the entire supply chain, from designing and manufacturing frames and lenses to retailing them. This allows it to control quality and offer prices that traditional players struggled to match.

Over the years, the company masterfully pivoted to an omnichannel strategy, launching a massive network of over 1,500 physical stores across India. These aren’t just stores; they are experience centres, seamlessly integrated with the online platform. This combination of online convenience and offline trust has created a powerful, defensible moat.

The Numbers Behind the Narrative

The Lenskart IPO is not built on dreams alone. The company has demonstrated robust execution:

• Market Dominance: It is the largest eyewear retailer in India, commanding a significant share of the organised market.
• Aggressive Expansion: The company has successfully expanded into international markets like Southeast Asia (via its acquisition of Japan’s Owndays) and the Middle East.
• Strong Investor Backing: Before the IPO, Lenskart was backed by a marquee list of global investors, including SoftBank Vision Fund, KKR, Temasek, and PremjiInvest, lending it significant credibility.

“Lenskart’s IPO is a classic case of a company asking investors to pay for its future growth, not its past performance. The key question is whether that future is already overpriced in the IPO.”

The Valuation Conundrum: The Spark That Lit the Fire

Despite its impressive business model, the IPO’s pricing became a major point of contention. As soon as the price band was announced, social media platforms, especially X (formerly Twitter), erupted with criticism. Retail investors and market analysts pointed to the steep valuation, calling it an ‘exit opportunity’ for early investors at the expense of the public.

The issue was fully subscribed on its opening day, primarily driven by Qualified Institutional Buyers (QIBs) and retail investors. However, this strong subscription did little to quell the debate. Many retail investors questioned the prudence of mutual funds, who are custodians of public money, for participating in what they perceived as an exorbitantly priced issue.

Why the Backlash? A Look at the Math

While the exact IPO metrics are part of the Red Herring Prospectus (RHP), the core of the criticism centred on a few key areas:

1. Price-to-Earnings (P/E) Ratio: New-age, high-growth companies often have very high or even negative P/E ratios, as they reinvest heavily in growth, sacrificing short-term profitability. Critics argued that even when factoring in future earnings, the asking P/E was significantly higher than established, profitable retail players.
2. Price-to-Sales (P/S) Ratio: This metric is often used for growth companies. Here too, Lenskart’s valuation was seen as being on the higher side of the spectrum compared to its global and domestic peers.
3. The Ghost of IPOs Past: Indian investors have fresh memories of several high-profile tech IPOs that listed at lofty valuations only to see their stock prices collapse post-listing. This has created a sense of ‘once bitten, twice shy’ among the retail community.

This public outcry put the spotlight firmly on the anchor investors, particularly prominent mutual fund houses like DSP. The question on everyone’s mind was: why would a fund manager, known for their discipline and rigorous analysis, buy into this IPO?

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DSP’s Counter: Unpacking the Four-Factor Investment Thesis

In an unusual move, DSP Mutual Fund took to social media to address the concerns head-on. Acknowledging that they rarely comment on individual stocks, the fund house laid out its investment rationale, providing a fascinating glimpse into the institutional mindset.

Their defense was structured around a four-factor framework: a strong business, trustworthy promoters, demonstrated execution, and valuations.

“We have always been selective in our approach to IPOs… It is rare to find all four perfectly aligned at the same time. In the case of Lenskart, we like the first three very much,” DSP stated in its post on X.

Let’s break down each of these pillars from an institutional perspective.

Pillar 1: A Strong & Scalable Business

For DSP, Lenskart represents a massive, long-term structural growth story. This isn’t just about selling spectacles; it’s about tapping into India’s vast, underserved vision care market.

• Huge Total Addressable Market (TAM): An estimated 500 million+ Indians need vision correction but don’t have access to it. This represents an enormous, untapped market that the organized sector is just beginning to penetrate.
• Shift from Unorganised to Organised: Lenskart is leading the charge in shifting consumers from small, local opticians to a branded, reliable, and standardized experience. This is a powerful, multi-decade trend.
• Expanding the Market: The company isn’t just capturing market share; it’s expanding the market itself by making eyewear fashionable and accessible. The introduction of brands like John Jacobs and the positioning of spectacles as a lifestyle accessory rather than a medical necessity widens its consumer base significantly.

Pillar 2: Trustworthy Promoters

In the world of long-term investing, the quality of the management team is paramount. An investment is often a bet on the jockey, not just the horse. Peyush Bansal, the founder and CEO, is a key factor here.

• Vision and Passion: Bansal is widely regarded as a visionary entrepreneur with a deep-seated passion for solving the problem of vision correction in India.
• Brand Building via ‘Shark Tank India’: His role as a ‘Shark’ on the popular TV show Shark Tank India has inadvertently made him a household name, building immense brand equity and trust not just for him, but for Lenskart as well. This public persona adds a layer of accountability.
• Professional Management: Beyond the founder, the company has built a strong professional management team to drive its ambitious growth plans.

Pillar 3: Demonstrated Execution

Ideas are cheap; execution is everything. DSP’s conviction is bolstered by Lenskart’s track record.

• Consistent Growth: The company has consistently delivered high double-digit revenue growth year after year.
• Successful Omnichannel Execution: Building and managing a network of over 1500 stores while growing the online channel is a complex logistical feat that Lenskart has pulled off successfully.
• Proven International Playbook: The successful integration of Owndays in Southeast Asia demonstrates that the Lenskart model is not just an ‘India story’ but can be replicated globally.

The Elephant in the Room: Acknowledging the Valuation

This is the most critical part of DSP’s defense. They didn’t claim the IPO was cheap. Instead, they contextualized the valuation.

“On valuations, we believe businesses associated with retail and e-commerce are trading expensive, including this specific business.”

This is a subtle but powerful statement. DSP is arguing for a ‘best house in an expensive neighborhood’ approach. They believe that high-quality, high-growth consumer businesses in India are commanding premium valuations across the board. In such a scenario, the choice is not between a cheap stock and an expensive one, but between a high-quality expensive stock and a lower-quality expensive stock.

Furthermore, DSP revealed two key risk management strategies:

1. Portfolio Rebalancing: The investment was not made from idle cash. DSP funded the Lenskart purchase by “trimming a slower-growing, similarly expensive position.” This is a classic portfolio management move: selling a relatively overvalued asset with slowing growth to buy into another overvalued asset with perceived superior long-term growth potential.
2. Careful Position Sizing: The fund house emphasized that it “sizes positions carefully when valuations are stretched.” This means that even with high conviction in the business, they likely invested a smaller, controlled portion of the fund’s assets, limiting the potential downside if the investment thesis doesn’t play out as expected.

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Institutional Giant vs. Retail Investor: A Tale of Two Perspectives

The DSP-Lenskart episode is a masterclass in the differing perspectives of institutional and retail investors. Understanding these differences is key to making informed decisions for your own portfolio.

What Should You, the Retail Investor, Do?

DSP’s decision is neither a blanket endorsement to subscribe nor a red flag to avoid. It is simply one data point based on a specific, long-term investment strategy. As a retail investor, you need to formulate your own thesis based on your financial goals and risk appetite.

Ask Yourself These Four Questions Before Investing:

1. What is My Time Horizon?

Are you looking for a quick pop on listing day, or are you willing to stay invested for at least 3-5 years? If you believe in India’s long-term consumption story and Lenskart’s ability to lead the eyewear market, the entry valuation becomes less critical over a longer period. If you’re a short-term trader, the high valuation and risk of a subdued listing should be a major concern.

2. Do I Understand the Business and its Risks?

Look beyond the hype. Do you understand its omnichannel model? Do you know who its competitors are? Have you considered the risks mentioned in the RHP, such as intense competition, changing consumer trends, and reliance on key management personnel?

3. Am I Comfortable with High-Growth, Low-Profitability Stocks?

Investing in a company like Lenskart requires a different mindset than investing in a mature, dividend-paying blue-chip company. You must be comfortable with volatility and the fact that profitability might take a backseat to growth for several years. This is a core principle of growth investing.

4. How Does This Fit into My Overall Portfolio?

Never put all your eggs in one basket. If you decide to invest, ensure the allocation is small enough that a negative outcome won’t derail your financial plan. Consider it part of the high-risk, high-return satellite portion of your portfolio, not the core.

The Final Word: A Bet on the Future of Indian Consumption

The Lenskart IPO controversy is a fascinating case study. It underscores the growing maturity and vocal nature of the Indian retail investor, who is no longer willing to accept any valuation thrown at them. Simultaneously, it provides a rare, transparent look into the disciplined, long-term framework that guides institutional decision-making.

DSP’s investment in Lenskart is a calculated wager. They are paying a premium price for what they believe is a premium business with a long runway for growth, run by a capable promoter. They are willing to look past short-term valuation concerns in favour of the multi-year business trajectory.

For retail investors, the key takeaway is not to blindly follow or reject the institutional view, but to understand it. The Lenskart IPO is a potent reminder that in the stock market, ‘price’ is what you pay, and ‘value’ is what you get. The debate is simply about how far into the future one is willing to look to find that value. How Lenskart performs post-listing will not just determine returns for its investors; it will set the tone for the next wave of new-age tech companies lining up to tap the Indian capital markets.