What Discounted Listing Of LIC Stock Means For Investors

Life Insurance Corporation (LIC) of India shares made a weak stock market debut on Tuesday. The much awaited listing of the country's largest share sale via initial public offering (IPO) got tepid response on the first day. LIC shares opened for trading at Rs 872 on the National Stock Exchange against its issue price of Rs 949, marking a decline of 8.11 per cent or Rs 77 from the issue price. On the BSE, LIC shares opened for trading at Rs 867.20, marking a decline of 8.62 per cent. 

The retail investors and eligible employees of LIC were offered a discount of Rs 45 per equity share over the issue price, while policyholders got a discount of Rs 60 per share. 

LIC policyholders and retail investors have got the shares at a price of Rs 889 and Rs 904 apiece, respectively. 

Shares were allocated to policyholders and retail investors after applying the discount applied to them. 

LIC IPO was subscribed 2.95 times during the exceptional five-day share sale which ended on May 9. The government sold over 22.13 crore shares or 3.5 per cent stake in LIC through the IPO at a price band of Rs 902-949 a share. 

What Led To Decline In LIC Shares On First Day 

The tepid listing of LIC is factor of weak sentiment in global markets and it has not to do with the company's valuations. At the upper band LIC IPO was priced at 1.1 times to its embedded value, which was at a significant discount to peers.  

Other insurance firms such as HDFC Life Insurance and SBI Life Insurance are currently trading at 4.05 times and 3.10 times their embedded values while ICICI Prudential Life is at 2.5 times, according to Bloomberg. 

The lower listing of LIC was commentary of the current state of global markets, explained Mohit Ralhan, managing partner at TIW Capital Group. 

“The 8 per cent lower debut of LIC shares is a commentary on the current state of global markets rather than the company itself. In terms of subscription, the LIC IPO was extremely successful given the fact that it was the biggest IPO of India. LIC has a solid business, trusted brand, and market leadership in an underpenetrated insurance market. In FY-21, LIC’s market share was about 75% for individual policies and 81% for group policies. It is the top life insurance company by a wide margin," Ralhan said. 

How Big IPOs Fared On Listing Day 

Last year, Paytm, which raised Rs 18,300 crore from the primary market suffered drubbing on its debut as the stock plunged as much as 28 per cent on the first day. Market participants then cited expensive valuations and its losses as reasons behind the drubbing. Since listing Paytm shares are down 76 per cent from the IPO price of Rs 2,150. 

Another IPO, Reliance Power was also met with the similar fate on the listing day. The Anil Ambani-led company raised Rs 11,563 crore from IPO in 2008 and was the biggest IPO until Coal India's IPO in 2010. On listing day, Reliance Power shares briefly soared to Rs 599.90 from IPO price of Rs 450 but ended the day massively lower. The stock closed at Rs 372.50 on first day of trading, down 17 per cent from issue price, data from BSE showed. 

On the other hand, Coal India which raised Rs 15,199 crore in 2010 had a strong listing day gains. The stock opened for trading at Rs 287.75 against issue price of Rs 245 per share and surged as much as 40 per cent from issue price to close at Rs 342. 

These big IPOs failed to enthuse investors as most of the issues were priced expensively, said AK Prabhakar, head of research at IDBI Capital 

"The valuation promoters want from the public is very high and they do not leave anything on the table for investors after listing. Paytm, Zomato and Car Trade IPOs were all expensive and now the liquidity is drying up and these stocks are falling," Prabhakar said. 

What Should LIC Shareholders Do After Weak Listing?

Analysts say that weak listing came on the back of high volatility in the markets and negative sentiments. However, the investors should take this dip as a buying opportunity given the strong brand recall value and given the fact India's life insurance market is underpenetrated and LIC is actively positioned to capture huge growth. 

"We believe India’s highly underpenetrated life insurance space is still at a nascent stage and is attractively positioned to capture the huge growth opportunity. LIC enjoys many competitive advantages like strong brand value, extremely large scale of operations, a huge network of agents, and an envious distribution network, further, the company’s issue was priced at a Price to Embedded value of 1.1x, providing a valuation comfort, so we suggest investors to stay with the company for the long term despite the negative listing," said Parth Nyati, founder of Tradingo. 

"Those who applied for listing gains can maintain a stop loss of Rs. 800. New investors can take advantage of the dips to accumulate this share for the long term. We would like to add that the company's further downside will be limited due to low float post listing," Nyati added.