LIC lists at 8.6 percent discount to issue price

Analysts expect the stock to bounce back in three to six months

Published: May 17, 2022 12:16:14 PM IST

Updated: May 17, 2022 11:45:06 PM IST

State insurance giant Life Insurance Corporation of India (LIC) on Tuesday listed at an 8.6 percent discount to its issue price of Rs 949 at the BSE. The offering, which was the largest initial public offering (IPO) in India, of Rs 21,000 crore, had closed strong on May 9, being oversubscribed 2.95 times, with bids for 47.83 crore shares, against an IPO size of 16.2 crore shares.

The LIC stock finally closed at Rs 875.45 at the BSE, down 7.75 percent over its issue price. Over 27.5 lakh shares were traded at the exchange. The stock was seen at Rs 872 in pre-open trade at the NSE.

LIC’s shares failed to list at a high premium due to sustained weakening stock prices and volatility, caused by rising inflation, commodity and raw material prices due to the continuing Russia-Ukraine war. These concerns have spooked foreign investors, who have been net sellers of Indian equities since last October, weakening sentiment further.

Also, fears of sustained interest rate hikes have increased after the Reserve Bank of India (RBI), on May 4, surprised investors with an out-of-cycle monetary policy 40 basis points repo rate hike, in a move to curb inflation.

All of these factors made the grey market premium for LIC slide prior to its listing, to a negative (discount) of Rs 10 per share on May 13, from Rs 90 premium on April 30 in the unlisted territory. But for LIC policyholders the pain would be less, having got shares at a discount of Rs 60 if they bid through the policyholders quota. Employees and retail investors got a discount of Rs 45 per share.

“The LIC discount on listing was expected. But we see this as a value momentum stock. The stock will bounce back in the next three to six months. Investors should also see this as the right time to invest and hold it for the long term,” says Suvajit Ray, head, products, IIFL Securities. The large balance sheet, market capitalisation and premium income all make LIC attractive (see table).

“One cannot ignore LIC,” says independent market expert Ambareesh Baliga. “The valuation was not a concern, as it was fairly priced. But the equity market conditions are weak and with strong allotment to the LIC issue, the demand is satiated, which led to the discount. It will be a stock worth looking at, as we expect it to bounce back.” The only broader concern regarding demand for the LIC stock is that the government, which—after a gap of one more year—may start to divest more of its now 96.5 percent stake in LIC. So there may be some pressure on the LIC stock.

Institutional support to the LIC issue came in strong, with bids for 11.2 crore shares, indicating a 2.83 times oversubscription for this portion. The policyholders’ portion of the book has been oversubscribed 6.12 times; employee reserve portion was oversubscribed 4.4 times and the retail investors portion 1.99 times.

LIC, which was formed in 1956 under the Life Insurance of India Act, had a market share of 61.6 percent in terms of premiums, 61.4 percent in terms of new business premium (NBP) and 71.8 percent in terms of number of individual policies issued, for the nine months ended December 31, 2021.

In 9MFY22, LIC’s NBP market share was 61.4 percent, around 1.6x the total private life insurance sector, and 6.7x the NBP for the second-largest player in the Indian life insurance industry. LIC is the fifth largest player globally in terms of the life insurance premium, and 10th largest in terms of total assets. Furthermore, LIC intends to increase its share of high-margin, non-par products to improve its margins, which will augur well for the company over the long term.

Some private sector insurance companies have been listed over the past five to six years, including ICICI Prudential Life Insurance, SBI Life Insurance and HDFC Life Insurance. SBI Life and HDFC Life had listed at a small premium to their issue price, while ICICI Prudential had listed at a discount.

With volatility increasing, market experts such as Pranav Haldea, managing director, Prime Database, forecasts a slowdown in upcoming fund raising activity. “We might see a bit of pause in new listings, given this latest spate of volatility. It might have created a bit of a dampener in corporate sentiment… as the foreign funds outlook and global markets are also weak,” he had told Forbes India.

Around 45 offerings have got approval from the Securities and Exchange Board of India (Sebi) and are ready to launch anytime (see chart).