Honasa Consumer Ltd’s IPO had lessons for investors

livemint.com:

₹324. On 10 November, the stock’s price fell during the day to a low of ₹256, which was more than a fifth lower than its issue price. Since then, the company’s stock price has recovered, and on Tuesday it closed at around ₹367, or a little over 13% higher than its issue price.

Nonetheless, several questions have been raised regarding the company’s listing. Should a startup which made a loss in the last financial year be allowed to sell shares to retail investors, especially when a large part of its IPO is an ‘offer for sale’? Further, should equity mutual funds, which primarily invest retail money in stocks, be allowed to invest in such stocks? As Honasa Consumer is not the first loss-making startup to be listed on the stock exchange, these questions hold true at a general level as well. In fact, there were two parts to the money raised through its IPO.

A bulk of it was an ‘offer for sale.’ So, the money raised through the sale of these shares was used to pay off existing investors who were selling their stake. Along with promoters and investment firms selling shares, other investors like Rishabh Harsh Mariwala, Kunal Bahl, Rohit Kumar Bansal and Shilpa Shetty Kundra also sold shares. At an issue price of ₹324, close to four-fifths of the IPO was an offer for sale.

Now, Honasa Consumer garnered a total of ₹765.2 crore through anchor investors. This refers to investment firms that act as anchors by buying shares in a company before its IPO opens. Of the ₹765.2 crore raised from anchor investors, seven mutual funds through 19 schemes bought shares worth ₹253 crore.

Six insurance companies also bought shares. Both mutual funds and insurance companies mainly invest money raised from retail investors. Since these retail