New India Assurance falls 10% on debut

Will take advantage of rapid growth in general insurance space, says chairman Srinivasan

Continuing the trend of weak post-listing performance among insurance companies, shares of The New India Assurance Company dropped 10 per cent during their trading debut on Monday.

The stock closed at Rs 723, compared to the initial public offering (IPO) price of Rs 800. It hit a low of Rs 717.4 and a high of Rs 750 on the National Stock Exchange (NSE). Shares worth Rs 185 crore were traded on the NSE and another Rs 31 crore on the BSE.

Earlier this month, the Rs 9,600-crore IPO had got a  lukewarm response from investors. Shares meant for the retail (small, non-wealthy) and high net worth individuals (HNIs) in the IPO were undersubscribed; cumulative bids from foreign investors were less than Rs 100 crore. State-owned Life Insurance Corporation (LIC) is said to have applied for shares worth at least Rs 8,000 crore in the IPO. The shareholding data wasn’t available to ascertain how much is LIC’s.

Market players said the selling pressure could have been  even more if the subscription figures  were higher in the IPO for the retail and HNI categories. This is the second government IPO after General Insurance Corporation of India to see value erosion after listing. The latter, the country’s largest reinsurer, listed last month and the shares are currently trading 11 per cent below the IPO price.

 

Market players say this is a new sector to enter the stock market and investors are yet to get a handle on valuing of entities in this space. Experts say companies in this sector are long-term plays on growth, with under-penetration and a rising share of finance in household savings.

G Srinivasan, chairman of New India Assurance, said the general insurance space was growing at a phenomenal pace. “With rising insurance awareness and higher disposable incomes, general insurance is poised for growth. Being the market leader, New India Assurance would take advantage of this and deliver value to all its stakeholders,” he said.

New India has 15 per cent of the general insurance space. It is the market leader in almost all its product portfolios, which cover fire, marine, health and motor insurance, among others. Senior officials in the company say they plan to bring more products very soon, in critical illness, foreign medical insurance, and travel insurance.

 

“The IPOs of general insurers will promote underwriting discipline both in terms of pricing and better risk management,” went a note by JM Financial. The brokerage says macro factors such as a favourable demographic profile, increasing crop insurance coverage, revival in capital expenditure and increasing penetration of automobile and health insurance will drive the growth.