State-run insurer of India slumped in the Mumbai trading debut after a record initial public offering that was priced at the top of the range and oversubscribed nearly three times.
After losing 9.4% earlier in the day, the shares ended 7.8% lower than the IPO price of Rs 949. The offering raised $2.7 billion, with buyers including sovereign funds in Norway and Singapore and millions of small-time Indian investors.
LIC's first-day performance makes for the second-worst debut among 11 global listed this year, after raising at least $1 billion through first-time share sales. Even as stocks in India and the broader Asian market rallied on Tuesday, the weak debut came even as it came as the markets in India and the broader Asian market rallied.
The sale of equity in the 65-year-old behemoth, which is synonymous with insurance in India, was oversubscribed nearly three times, due to the enthusiasm of policyholders who received a Rs 60 discount and bid multiple times for the shares on offer. The stock is below the discounted price at the closing price of Rs 875.25.
The positives around the company are centered around a single point in the size. Nirav Karkera, head of research at Fisdom, a Mumbai-based investment advisory firm, said it is the largest insurer with the largest market size and the largest network of agents. All said and done, will receive its due. It will not be an easy journey. Once you are under the glare of the investors, you need to focus on growth of the business. The poor listing is set to disappoint millions of small-time investors who bid enthusiastically for the issue because of their long and emotional association with the insurer and its products.
Prime Minister Narendra Modi decided to push ahead with the IPO despite a slowdown in global fundraising as the war in Ukraine and rising interest rates stoked volatility and sapped investor appetite for equities. Funds from the IPO are critical to bolster government finances and meet a budget deficit goal.
LIC is the fourth-largest deal among global IPOs priced this year. It comes when there is a shortage of large-size offerings in financial hubs from New York to London and Hong Kong. There hasn't been a listing exceeding $1 billion in Hong Kong or Europe this year.
The S Index, a measure of the performance of Indian shares for the first two years after listing, has fallen 23% in 2022 after nearly tripled in the previous three years.
The weak start brings back memories of market debuts by a number of large public sector that fell below issue price on listing. New India Assurance Co., listed in November 2017, finished its first session 9% less than the listing price. Half of the 21 state-owned firms that have debuted since 2010, are still trading below their IPO price.
Macquarie Capital Securities India Pvt. LIC's stock has been covered with a neutral rating and a price target of 1,000.
In a report Tuesday, analysts said that the insurer has lost market share in individual business over the past several years due to lack of a diversified product portfolio and excessive focus on single premium and group business, so the call is whether it will be able to diversify the product mix in favor of high margin non-par products.