As the state-owned corporation made its market debut on Tuesday, shares of Life Insurance Corporation of India fell more than 5% in early trade, owing to low investor confidence following recent equities market turbulence.
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After the government sold a 3.5 % interest in the business for $2.7 billion, making it India’s largest-ever initial public offering, LIC’s trading debut was keenly anticipated.
“Though the LIC listing was below the issue price of 949 rupees [$12.2 a share], given the attractive valuations, we expect some buying interest in the stock from both retail and institutional investors,” said Hemang Jani, Motilal Oswal Financial Service’s head of equity strategy, broking and distribution.
LIC is a well-known company that was founded in 1956. Investors hurried to acquire shares when the company’s initial public offering (IPO) was announced earlier this month. The shares on offer were roughly three times oversubscribed.
Given the difficult circumstances, the government decided to postpone and reduce back plans to sell a 3.5 % interest rather than the 5% it had planned.
The public float provided much-needed revenue for New Delhi, which is struggling to control its budget deficit due to the Covid-19 outbreak, which has struck government coffers hard, and increased oil costs are further adding to the pressure.
The IPO is part of a larger effort to sell public assets to help the government balance its books.
The public offering is in high demand. “despite the current obstacles, it has given us a fairly bullish picture of the financial markets going forward.” At the LIC listing event on Tuesday, Tuhin Kanta Pandey, secretary of India’s department of investment and public asset management, remarked, “Markets have ups and downs, as we all know.”
Anchor investors included sovereign wealth funds from Norway and Singapore. LIC shares were also purchased by a number of policyholders and other small retail investors, including first-time stock market participants.
Given the company’s background and the immense growth potential of India’s life insurance market, which experts say is underpenetrated, there has been a lot of anticipation around the insurer’s debut.
However, as competition from private insurers has grown, LIC’s market share has decreased – even though it remains India’s largest insurer by far.
“While there may be some retail selling today as a result of current market emotions, the long-term fundamentals of LIC remain intact,” said Girirajan Murugan, CEO of FundsIndia, an online investing platform.
“Once the dust settles on the market in regards to the ongoing challenges surrounding the Ukraine-Russia war and inflation concerns, insurance companies, as well as other beaten-down equities in the banking and non-banking finance area, could see excellent momentum.”
Many of India’s state-owned enterprises that have gone public have underperformed. Half of the 21 state-run companies that have gone public are trading at a discount to their initial public offering price. Furthermore, numerous Indian firms that went public last year are selling at a significant discount to their IPO price.
