Otto Money Newsletter - 8 Nov 2025

Dear Reader,

Recently, the Lenskart IPO dominated the financial news, igniting a fierce debate and dividing people into two camps - those who thought it was worth a buy and those appalled at its valuation. It also created thousands, if not millions, of valuation experts out there. This note is longer than usual, but we strongly recommend that you read it fully.

Lenskart is being valued at roughly 10x price to sales - the P/E ratio is meaningless for a company which was loss making by design and is just about going to focus on profits. This is certainly high - but some of its peers in retailing were also being valued by the market in the same ballpark. Page Industries, at the time of this hue-and-cry, was also valued at a price to sales of ~9.3. Does this justify the valuation of Lenskart? Or does it mean that investors need to revisit their portfolio allocations and check if they own overvalued stocks? We certainly believe it is the latter.

In general, the mid cap segment is expensive and that is why our portfolio allocation to SMIDs is lower these days. Here is an interesting chart of India’s historical CAPE (Cyclically Adjusted Price Earnings ratio). Shiller’s CAPE is used very often in the US - but not really discussed in India. The chart shows that large caps are cheaper than SMIDs.

The other voices were about MFs investing at these overvalued prices and there were even allegations of kickbacks! We did the due diligence, both on the IPO and some of our portfolio schemes who are anchor investors in the IPO. Overall, the allocation of the portfolio to this IPO is way less than 0.05%. One of our midcap funds has invested less than 0.1% of their AUM and that fund is less than 10% of our portfolio. We continue to repose trust in the fund managers and their processes. Our fund ranking process already looks for some of these troubling signals. In the past, we have downgraded a fund house because they were gullible enough to get taken in by an obviously inflated IPO with a questionable promoter track record AND took a sizable position. We’ll of course not be able to name that fund or fund house - but if you are a customer, it’s an easy guessing game.

On a slightly broader note, the author doesn’t usually engage in IPO investing. We’ll give you our reasons here and then let you decide if you still want to do it. Of course a startup has done many things well to become big enough to get to the public market. Kudos to them! But when it comes to giving them our hard earned money, we need to look at it more critically.

1) Reliable information about management’s ability to walk the talk is missing. For companies listed for some time, we get this from their AGMs/Concalls and earnings.

2) We are presented with a version of the financial statements that the merchant bankers & CFOs started crafting and shaping some time ago in preparation for the IPO. This makes valuation a difficult exercise for IPOs.

3) The Allocation Game: Say we put in the work and find a great business being listed at reasonable valuations. Nowadays, such offers are subscribed 80-200x! That implies an IPO application of Rs 2L will, on average, get an allocation of 2,000 only! Even with a 50% pop, that’s a gain of a full 1000 rupees after 10 hours of research, and putting 2L in the bank by breaking the compounding of some investment.

4) IPOs generally appear with higher frequency in bull markets - when promoters want to cash in on expensive valuations! See the graph below. Should we really be buying on their prices at the time of their choosing? 08th Nov, 2025

Click below to read our Market Update - a compilation of important metrics for you.

Warm Regards,

Wealth Beacon Team

If you have feedback or haven’t already gotten your portfolio analyzed and streamlined, you may contact us at: contact@wealthbeacon.ai .

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