Will LIC break the ‘large-IPO’ jinx on D-Street?

Mumbai: Investors haven’t had a pleasant experience in India with most jumbo initial public offerings.

Super-sized issues such as

() in 2021, General Insurance Corporation in 2017, in 2008 and in 2010 have lost money after listing. The slump in some of those denied investors the opportunity to recover even their subscription money. They’ll be hoping the Life Insurance Corporation of India (LIC) share sale-set to be the country’s biggest-will break the ‘large IPO’ jinx on Dalal Street.

Early indications are that LIC’s ₹21,000 crore IPO is likely to sail through comfortably. Fund managers and analysts said the government has responded well to the market’s demand to price the issue attractively relative to smaller, listed peers amid challenging market conditions. The unofficial grey market for LIC picked up ahead of the May 4-9 offer with the premium rising to around ₹85 over the issue price. This implies a 9% return at the upper end of the price band of ₹902-₹949 per share.

Nonetheless, several overseas funds are likely to give the LIC issue a miss because of the general aversion to emerging markets like India. Also, many of the fund managers are already cutting their ‘overweight’ on Indian financials, forcing them to skip the IPO.

The bigger challenge for LIC and the government will be to ensure that investor interest in the company is sustained after a likely strong debut on the bourses. At the IPO valuation of ₹6 lakh crore, LIC is set to be the fifth most valuable company. For the insurance giant to remain in the big league on the bourses, it will have to start with arresting the recent ceding of market share to smaller private rivals. To be sure, LIC’s industry market share was still a dominant 43% earlier this year, while it remains among the country’s best brands. Money managers who have evaluated the state-owned insurer’s prospects said keeping hold of the current industry share might be enough to maintain its market value.

But if LIC wants to command a premium, the market will expect the management to focus on a more aggressive digital strategy as well as a revamp of its product mix with a greater focus on term insurance. A senior fund manager said investors are mindful that a rapid shift to a stock market-friendly business strategy might be a challenge for LIC given that it has traditionally relied on its uniquely strong sales network to sell products. That’s why LIC’s valuation is at a discount to the smaller private players. This may also be factoring in the likelihood of a constant supply of LIC shares as the government might look to offload stakes every year to raise money.

For LIC, a stock market listing means it will be forced to take on a higher profile. The harsh market glare has tended to be brutal in instances of lapses in transparency. UBS said in a note in February that the IPO could “bring transparency to LIC’s operations and increase rationality in its business decisions”.

The likelihood of LIC bucking the unfavourable run of large IPOs is stronger because cheaper valuations have given the company some breathing space. Unlike Paytm – the biggest before LIC – the insurer will be under little pressure to keep the market happy in the near term. Post listing, a trigger for stock upside would be LIC’s entry into the benchmark indices – the Sensex and Nifty. This will make the insurance giant eligible to be a part of several passive portfolios, prompting purchases from index funds and exchange-traded funds (ETFs). Analysts said LIC’s low free float is, however, a hindrance to its entry into the stock benchmarks.

Most domestic analysts are recommending the IPO. Their contention is that in an expensive market a cheaply valued bluechip with a dominant industry share will be a good bet.



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