India priced LIC‘s record-breaking IPO last week at 949 rupees ($12.20), the top of the indicated range. The government has raised around $2.7 billion from selling a 3.5% stake in LIC, the country’s top insurer, which is state owned.
But volatility in global markets and selling pressure in the domestic stock market are likely to cast a shadow on LIC’s listing, with the shares likely to start trading near the IPO price or at a slight discount.
“Unofficial grey premium is trading down into negative territory mainly on the back of depressed global markets which are in the bearish zone … We expect a soft listing at +/- 5% of the offer price,” said Prashanth Tapse, research analyst at domestic brokerage Mehta Equities.
New Delhi had planned to list LIC in March this year but had to defer it as market conditions were not favourable in the wake of the Ukraine conflict.
The offering is seen as being important to India meeting its ambitious target for selling off state assets. The debut performance will also set the mood for forthcoming issues after retail investors were badly burnt by India’s recent large IPOs.
The price range for the issue was set between 902 and 949 rupees per share. LIC offered a discount to employees and retail investors of 45 rupees per share, while policyholders were given a discount of 60 rupees per share.
In the grey market, LIC shares were trading at a discount of nearly 15 rupees compared with a premium of nearly 100 rupees earlier this month.
“Even if the shares list flat on Tuesday, retail investors will still be able to make gains due to the discount that was offered so I don’t see it as a bad bet as valuations are also attractive,” Narendra Solanki, fundamental research head at domestic brokerage Anand Rathi.
The 66-year-old company dominates India’s insurance sector, with more than 280 million policies.
IPO market slowdown
The Indian IPO market, which saw dizzying growth in 2021, has had a significant slowdown this year. This shows the impact of geopolitical tensions, stock market volatility, a price correction in over-valued stocks from recent IPOs, plus concerns about rising commodity and energy prices, and slower economic growth, EY said in a report on Monday.
In the first quarter of 2022, proceeds raised through India’s primary markets were at $995 million via the three largest IPOs compared with $2.57 billion same period last year, EY said.
If market conditions improve there could be a robust pipeline of IPOs this year as more than 20 companies have filed draft prospectuses in first quarter of this year, Sandip Khetan, Partner and Financial Accounting Advisory Services Leader, EY India said.