Nilesh Shah slams social media critics: Why fund managers know better than online 'experts' on IPOs!

Nilesh Shah, the Managing Director of Kotak Mahindra Asset Management Company and a part-time member of the Prime Minister's Economic Advisory Council, has urged investors to disregard social media debates surrounding mutual fund investments in new-age companies. He stresses that market forces should dictate investment decisions rather than speculative online discussions.

Market Forces and Investment Philosophy

• Shah clarified that mutual funds strategically invest only in sectors or companies where they anticipate profits. This principle guides their decisions, overriding prevailing social media narratives.
• He highlighted that a fund manager's primary concern is generating returns for their investors, irrespective of how much profit existing investors have already made.

The Meesho IPO Debate

• The discussion was prompted by the high valuation of the recent Meesho IPO, which saw significant interest from mutual funds, sparking criticism on social media and calls for regulatory intervention.
• Shah pointed out that 140 institutional investors participated in the Meesho IPO, which was priced between ₹105 and ₹111 per share, valuing the company at up to ₹50,096 crore.
• He questioned the credibility of social media critics compared to the collective wisdom of numerous institutional investors and renowned investors like Radhakishan Damani, who also invested in the stock.

Anchor Allotment and Investor Exits

• Regarding anchor allotment, Shah explained that investments are based on thorough research, acknowledging that some predictions may be incorrect.
• He noted that anchor allotments come with a mandatory lock-in period, indicating that fund managers only commit if they see a genuine moneymaking opportunity.

Concerns Over Foreign Investor Profit

• Shah expressed concern over certain financial investors, particularly foreign entities, exiting investments with substantial profits without contributing tangible value to the business.
• He used Maruti Suzuki's history as an example where value addition by Suzuki is understandable, but noted instances where foreign companies extract massive profits without equivalent value creation.
• He stated that exits for foreign investors should be proportional to the value they add to the Indian businesses.
• Shah also pointed out that net Foreign Portfolio Investor (FPI) inflows have become zero, with significant outflows of $80 billion from resident and promoter exits, warning that this trend could escalate if not addressed.

Impact

• This commentary could bolster investor confidence in the systematic approach of mutual funds and reduce undue influence from social media speculation.
• It may also prompt further discussions on regulatory frameworks concerning foreign investment exits and value addition in Indian companies.
• The insights provided are crucial for understanding the nuances of IPO investing and the operational logic of asset management companies.
• Impact Rating: 7/10

Difficult Terms Explained

• New age companies: Typically refers to technology-driven startups and companies in their early to growth stages, often with high valuations and innovative business models.
• IPO (Initial Public Offering): The process by which a private company offers its shares to the public for the first time, becoming a publicly traded company.
• Mutual Fund: A type of financial vehicle made up of a pooled amount of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets.
• Institutional Investors: Large organizations that invest in securities on behalf of their clients or members, such as pension funds, insurance companies, mutual funds, and endowments.
• Anchor Allotment: A portion of an IPO reserved for certain institutional investors who commit to buying shares before the IPO opens to the general public, often at a fixed price.
• Lock-in: A period during which an investment cannot be sold or transferred.
• FPI (Foreign Portfolio Investor): An investor from another country who buys securities such as stocks and bonds in another country.
• Promoter Exits: Situations where the original founders or promoters of a company sell their stake.
• Value Add: The additional benefit or improvement that a party brings to a business or product beyond its inherent value.