The Social Media Verdict Was In: Lenskart’s IPO is ‘Too Expensive’. Then DSP Mutual Fund Weighed In.
The Indian stock market is no stranger to heated debates, but the recent Lenskart IPO took the conversation to a fever pitch. On platforms like X (formerly Twitter), financial forums, and investor WhatsApp groups, a single word echoed with resounding force: ‘Expensive’. Retail investors, armed with valuation metrics and sharp opinions, dissected the eyewear giant’s public offering, with many deeming its price tag exorbitant. The sentiment wasn’t just chatter; it morphed into calls for boycotting mutual funds that dared to participate.
In the midst of this digital firestorm stood a stalwart of the Indian asset management industry: DSP Mutual Fund. When the anchor investor list for the Lenskart IPO was released, DSP’s name was prominent. The backlash was swift. How could a fund house, a custodian of public money known for its disciplined approach, invest in a company that a significant portion of the market had already written off as overvalued?
In an unusual but welcome move, DSP broke its silence. Deviating from their standard policy of not commenting on individual stock holdings, they took to social media to address the concerns head-on. Their clarification wasn’t just a simple defence; it was a rare, transparent glimpse into the mind of a large institutional investor. It laid bare the complex calculus that goes into an IPO investment, a process that looks far beyond the surface-level valuation multiples that dominate social media discourse.
This article is a deep dive into that very moment. We will unpack DSP’s justification, explore the bull and bear cases for Lenskart’s controversial valuation, and most importantly, extract actionable lessons for you, the Indian retail investor. Is DSP’s bet a masterstroke of long-term vision, or a miscalculation under IPO frenzy? Let’s find out.
Decoding the Lenskart Phenomenon: More Than Just a Spectacle
To understand the valuation debate, one must first understand what Lenskart is—and what it isn’t. Calling it a simple eyewear retailer is like calling Amazon just a bookseller. Founded in 2010 by Peyush Bansal, Lenskart has meticulously built a vertically integrated empire that controls everything from design and manufacturing to the final retail experience.
The Omni-Channel Behemoth
Lenskart’s true strength lies in its ‘omnichannel’ approach, a seamless blend of online and offline retail that has become the gold standard in modern commerce.
- Digital Dominance: Its user-friendly app and website, complete with futuristic features like 3D Try-On, have captured the imagination of India’s digitally native population. This online-first approach allows for massive data collection, enabling personalized recommendations and trend analysis.
- Offline Expansion: The company has aggressively expanded its physical footprint, with over 1,500 stores across India. These aren’t just sales points; they are experience centres offering free eye check-ups, stylist consultations, and a tangible touchpoint for the brand.
- Vertical Integration: By owning its manufacturing facilities, Lenskart controls quality and costs, allowing it to offer competitive pricing while maintaining healthy margins. This is a significant moat against competitors who rely on third-party suppliers.
The IPO Frenzy: By the Numbers
Lenskart’s IPO was one of the most anticipated market events of the year. The initial numbers reflected this immense interest, even with the valuation concerns. On its very first day, the IPO was fully subscribed, signalling strong demand, particularly from institutional players.
- Overall Subscription: The issue was subscribed 1.13 times on Day 1.
- Qualified Institutional Buyers (QIBs): This segment, comprising mutual funds, banks, and foreign investors, showed robust demand, subscribing their portion 1.42 times. The participation of names like DSP lent credibility to the issue.
- Retail Individual Investors (RIIs): The retail segment also showed keen interest, with a subscription of 1.31 times.
- Non-Institutional Investors (NIIs): This category, consisting of high-net-worth individuals, had a slower start at 41% subscription.
This strong institutional and retail showing on the opening day set the stage for the controversy. While the numbers looked good, the underlying question remained: Were these investors, especially the large funds, seeing something the critics were missing?
DSP’s Defence: Unpacking the Four-Factor Investment Framework
Faced with a barrage of questions, DSP Mutual Fund laid out its investment thesis in a public post. Their argument rested on a disciplined, four-factor framework they apply to all IPO investments. They candidly admitted that it’s rare to find a perfect score on all four, and in Lenskart’s case, one factor was admittedly weak.
“We remain disciplined in our approach to IPOs and invest only when we have conviction across four factors — a strong and scalable business, trustworthy promoters, demonstrated execution, and valuations. 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 Mutual Fund via X
Let’s break down these three ‘strong’ factors from DSP’s perspective.
Factor 1: A Strong and Scalable Business
DSP’s conviction begins with Lenskart’s fundamental business model. They see a company that has solved a critical problem in a massive, under-penetrated market.
- The Market Opportunity: India has one of the highest rates of visual impairment in the world, yet the penetration of corrective eyewear is shockingly low. This presents a massive, multi-decade growth runway. Lenskart is not just capturing existing demand; it’s creating a market by making eye care accessible and fashionable.
- The Moat of Vertical Integration: As mentioned, owning the supply chain from factory to face gives Lenskart an unassailable edge in cost, quality control, and speed. This allows it to disrupt the traditionally fragmented and inefficient optical market.
- Scalability Through Technology: Lenskart is, at its core, a tech company. Its investments in AI for facial analysis, robotics in manufacturing, and data analytics for inventory management make its model highly scalable. It can open new stores or enter new countries with a repeatable, data-driven playbook. This is what institutional investors look for—not just growth, but predictable and scalable growth.
Factor 2: Trustworthy Promoters
In the Indian context, the quality and integrity of the management team are paramount. For long-term investors like DSP, they are not just buying a stock; they are backing a team.
- Visionary Leadership: Peyush Bansal, a well-known face thanks to his presence on Shark Tank India, is widely regarded as a visionary entrepreneur. His focus on customer-centricity and long-term brand building resonates with institutional investors who prefer founder-led companies with a clear mission.
- Alignment of Interest: Promoters with significant ‘skin in the game’ (i.e., a large personal shareholding) are generally seen as more aligned with the interests of minority shareholders. Their wealth is directly tied to the company’s performance.
Factor 3: Demonstrated Execution
A great idea is worthless without execution. DSP’s confidence is bolstered by Lenskart’s impressive track record.
- Consistent Growth: The company has demonstrated a consistent ability to grow its revenue and expand its physical and digital presence year after year. It has successfully navigated complex challenges, including the COVID-19 pandemic, emerging stronger.
- Building a Beloved Brand: Lenskart has transformed eyewear from a medical necessity into a fashion accessory. This powerful brand recall and customer loyalty are testaments to their marketing and operational execution.
- Global Ambitions: Their successful expansion into markets like Singapore and the UAE demonstrates that their business model is not just an ‘India story’ but has the potential for global replication.
The Elephant in the Room: Tackling the Valuation Question
This is where DSP’s clarification gets truly interesting. They didn’t try to argue that Lenskart was cheap. They openly acknowledged the high price.
“On valuations, we believe businesses associated with retail and e-commerce are trading expensive, including this specific business.”
So, why invest? This is where institutional thinking diverges sharply from typical retail sentiment. DSP revealed two key risk management strategies they employ when investing in high-growth, high-valuation companies.
1. The Relative Value Game: A Calculated Switch
DSP explained that they funded the Lenskart investment by “trimming a slower-growing, similarly expensive position.” This is a crucial insight into portfolio management. Fund managers rarely hold large amounts of cash. Their job is to stay invested. Therefore, every investment decision is a relative one.
The question for the fund manager wasn’t, “Is Lenskart cheap?” It was, “Is Lenskart a better place to park our capital for future growth than another expensive stock in our portfolio that is growing more slowly?”
By selling a part of another holding that was also trading at a high valuation but had lower growth prospects, they made a calculated switch. They effectively swapped one expensive asset for another, but the new one (Lenskart) presumably had a much higher potential for long-term compounding in their view. This is active management in its purest form.
2. The Power of Position Sizing
The second pillar of their risk management is position sizing. DSP stated, “We size positions carefully when valuations are stretched.”
This means that even with their conviction in the business, the Lenskart investment would likely represent a small fraction of the overall fund’s portfolio. For a fund managing thousands of crores, an anchor investment in an IPO might be just 0.5% or 1% of its total assets.
This strategy allows them to participate in the potential upside of a high-growth story without exposing the entire portfolio to significant risk if the investment doesn’t pan out. If Lenskart becomes a multi-bagger, even a small position can have a meaningful impact on the fund’s overall returns. If it underperforms, the damage is contained and will not sink the entire ship. This is a vital lesson in risk management that every retail investor should heed.
Lessons for the Indian Retail Investor from the DSP-Lenskart Saga
This entire episode is a treasure trove of insights for retail investors navigating the complexities of the stock market, especially the allure and danger of IPOs.
Lesson 1: Think Like an Owner, Not a Renter
The social media outrage was largely focused on the short-term: listing day gains and immediate valuation multiples. DSP’s framework forces a shift in perspective. They are thinking like long-term business owners. Ask yourself the same questions they did:
- Is this a business I would want to own a piece of for the next 5-10 years?
- Do I believe in the management’s vision and their ability to execute it?
- Does the company have a durable competitive advantage or ‘moat’?
Valuation is just one piece of the puzzle, and as DSP admitted, it’s often the least attractive piece in a truly great growth company.
Lesson 2: Understand the Nuances of Valuation
Valuation is not an exact science. While metrics like Price-to-Earnings (P/E) or Price-to-Sales (P/S) are useful, they are often insufficient for high-growth companies that are reinvesting every penny back into the business. For companies like Lenskart, institutional investors are looking at:
- Total Addressable Market (TAM): How big is the potential market the company is targeting?
- Future Growth Rates: What is the projected revenue and profit growth over the next 5-10 years?
- Operating Leverage: As the company scales, will its profit margins expand significantly?
A company might look expensive on today’s earnings, but if it can grow its profits by 30-40% annually for the next decade, it might look incredibly cheap in hindsight.
Lesson 3: Your Risk Management is Your Responsibility
Perhaps the most critical lesson is about risk management. You might not have the sophisticated tools of a mutual fund, but you can apply the same principles.
- Position Sizing is King: Never go all-in on a single stock, especially a high-risk IPO. Decide on a maximum allocation for any single company in your portfolio (e.g., no more than 5%). Stick to it religiously.
- Diversify: Don’t just own one ‘hot’ tech stock. Build a diversified portfolio across different sectors and market caps. This is your best defence against the failure of any single investment thesis.
- Know Your Time Horizon: Are you investing for listing gains or for long-term wealth creation? An anchor investor like DSP has a multi-year horizon. If you are applying for an IPO with a short-term view, your risk is significantly higher.
Lesson 4: Beware the Echo Chamber of Social Media
Social media is a powerful tool for information, but it’s also a breeding ground for herd mentality and confirmation bias. The overwhelming consensus that Lenskart was ‘expensive’ could have deterred many from even studying the business. DSP’s contrarian stance highlights the importance of independent thinking and doing your own research (DYOR). Always question the narrative and seek to understand the opposing viewpoint.
The Final Verdict: A Calculated Risk on India’s Future
The Lenskart IPO and DSP’s subsequent clarification mark a fascinating chapter in the evolution of Indian capital markets. It’s a story of a new-age, D2C powerhouse meeting the disciplined, long-term framework of an established institutional investor, all playing out under the watchful eye of a vocal and empowered retail investor community.
DSP’s decision to invest in Lenskart, despite acknowledging its rich valuation, is not a blind gamble. It is a calculated risk, underpinned by a deep conviction in the business’s long-term potential and managed through prudent portfolio and position sizing strategies. They are betting that Lenskart’s strong business model, visionary leadership, and flawless execution will eventually grow the company into its valuation, delivering superior returns over the long haul.
For retail investors, the key takeaway is not whether DSP is right or wrong. Only time will tell. The real value lies in the transparent glimpse into their thought process. It’s a reminder that successful investing is a nuanced affair that goes far beyond a stock’s current price. It’s about understanding the business, trusting the people running it, and having the patience to let the story unfold, all while managing your risk diligently.
As Lenskart begins its journey as a publicly-listed company, the market will be watching its every move. But for the discerning investor, the most valuable lessons from its IPO may have already been taught.
