India's Record IPO Set for a Soft Debut on Bearish Sentiment

The record $2.64 billion listing of Life Insurance Corporation of India (LIC) is poised for a weak start in trading tomorrow amid bearish sentiment on domestic and global markets.

Pre-market trading indicates shares will open at 15 to 20 rupees lower than the issue price of 949 rupees ($12.20), said Dinesh Gupta, co-founder of Unlisted Zone, a trading platform for unlisted shares. On Friday shares traded at a discount as high as Rs. 30 per share, he said.

“LIC is getting listed at a time when the secondary market is hitting lows almost every day, echoing worldwide market volatility on concerns about rising interest rates, higher inflation, and slowing global growth,” said Manan Doshi, co-founder of Unlisted Area. “The huge IPO size is also dampening sentiment.”

The government sold 221.3 million LIC shares, or 3.5% of the company. They were oversubscribed almost three times.

The listing is a test of the depth of India’s capital market and of the appetite for its state-owned companies.

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Discounts for Policyholders, Employees

Retail investors and policyholders were allotted shares at a discount so still may gain even if LIC debuts at below the allotment price, Gupta said.

Retail investors and eligible employees paid 904 rupees for their shares, a discount of Rs 45 per share, while policyholders paid Rs 889, a discount of Rs 60 per share.

The LIC IPO allotment was announced on May 12, following news that the issue was subscribed around 2.95 times the issue size.

Maximum bids were received for the policyholders’ portion, which was subscribed a little over six times, followed by employees, who had bid for 4.4 times the amount they were allotted.

Stocks Down, But Advisers Say ‘Buy’

The Bombay Stock Exchange’s Sensex index ended Monday up 0.3% but is still down more than 7% in the past month and about 10.5% this year.

The rupee also hit new record lows repeatedly last week and closed at an all-time low of 77.80 per dollar on Monday.

But Sonam Srivastva, the founder and lead analyst at Mumbai-based Wright Research, says LIC would be an outstanding stock to hold.

“The stock has an exciting path ahead, where many passive indices tracking India will include it in their baskets,” she said. “Our recommendation would be to hold on to these shares.”

India’s insurance industry is on a growth path, driven by continued economic expansion and rising demand for health and life protection products and a low rate of premiums as a percentage of GDP, according to Moody’s.

Now that it’s bringing aboard public shareholders, Moody expects LIC to tighten its underwriting standards and improve its risk management and governance, which should contribute to a stronger financial profile.

• Indrajit Basu