LIC may list at a discount to issue price if grey market is an indicator

Stock could list anywhere between Rs 900 and Rs 940, says market player, citing weak institutional investor demand during LIC's Rs 20,577-crore maiden share sale

Shares of Life Insurance Corporation (LIC) are seen slipping below their issue price of Rs 949 per share during their stock market debut on Tuesday.

The stock could list anywhere between Rs 900-Rs 940, said market player citing grey market activity and weak institutional investor demand during LIC’s Rs 20,577-crore maiden share sale.

The country’s largest-ever initial public offering (IPO) saw 2.9 times more demand than shares on offer, generating bids worth over Rs 43,000 crore. However, bulk of the demand came from individual investors. Foreign portfolio investors (FPIs) bid for shares worth just Rs 2,300 crore in the IPO.

“Small investors have managed to shore up the demand in the IPO. However, for the stock to do well, you will need follow up demand post-listing. Given the lukewarm response from FPIs in the IPO and their sustained pullback from the secondary market, it looks unlikely that they will be there to support the prices,” said an investment banker asking not to be quoted.

LIC’s weak listing can weigh on the sentiment of investors. The IPO saw the highest-ever participation of over 7 million small investors. However, given the discount offered by the government, they could still make nominal gains. The IPO price of LIC has been set at Rs 949 per share---the upper-end of the price band.

Retail investors have been allotted shares at Rs 905 apiece and policyholders at Rs 889 per share. At the IPO price, LIC will have a market capitalisation of Rs 6 trillion, making it India’s fifth-most valuable company after Infosys, which is currently valued at Rs 6.26 trillion.

LIC had an embedded value (EV) of Rs 5.4 trillion as on September 2021. The IPO values the insurer at 1.1 times EV lower than private sector peers which currently trade between 2 and 3.5 times their EV. However, LIC is unlikely to get similar multiples given private peers’ high-growth potential and rising market share.

Break-even cost for:

Policyholders: Rs 889

Retail & employees: Rs 905

IPO price: Rs 949