Lenskart IPO GMP crashes 70% from peak. Will it defy odds to reward investors with listing
Retail Investors Must Stay Alert When Investing in Highly Valued IPOs
Retail investors should exercise caution when investing in expensive initial public offerings (IPOs). Many new-age technology companies come with limited financial history, and their business models are often untested.
Lenskart’s IPO is a recent example. The stock listed about 3% below its issue price of ₹402 on the National Stock Exchange and dropped further to ₹355.70 during the day. Despite being valued at a price-to-earnings (P/E) ratio of 238 times and a price-to-sales multiple of 8–9x, the issue was oversubscribed more than 28 times. For comparison, the BSE Consumer Discretionary Index trades at a P/E of 45 times. Investors also questioned why 70% of the ₹7,278 crore issue was an offer-for-sale, suggesting that many early investors were exiting.
While the company could still perform well over time, small investors should not blindly follow institutional investors. Large funds often participate for reasons beyond belief in long-term growth. Anchor investors, for instance, may invest as little as 0.1–0.2% of their total assets. Their participation can be more about maintaining goodwill with investment bankers than genuine conviction.
Former banker Devina Mehra points out that the relationship between investment bankers and large funds often works on mutual favors. When a company prices its IPO aggressively, bankers persuade mutual funds to buy a token amount to boost confidence in the market. In return, those funds get better allocations in future issues that are priced more attractively.
Many tech start-ups remain unprofitable even after listing. Their future depends on how they adapt to competition and regulatory changes, as seen in the fintech sector. Investing in such companies often involves a leap of faith.
Recent IPO performances have shown mixed outcomes. Paytm’s stock disappointed investors, while others like Zomato and Nykaa have offered better returns over time. Companies such as Ola Electric, Swiggy, and Urban Company continue to post quarterly losses but could still deliver growth ahead.
Retail investors can participate in such IPOs, but only if they clearly understand the risks and are prepared for volatility. A rational approach, backed by research and patience, remains the safest way to invest in high-growth stories.
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