Weak global cues to hammer LIC listing? Here's what grey market signals

The declining risk appetite of investors amid rising rates and inflation continue to play spoilsport across markets. With persistent bears hammering, the prospects of a decent listing of Life India Insurance (LIC) has diminished, as per trends in the grey market. Shares of LIC were trading at a discount of Rs 15-20 a piece over its issue price of Rs 949 in the grey market ahead of its listing on Tuesday, May 17.

In the unofficial market, the grey market premium (GMP) of LIC has shed over 100 per cent from its peak level of Rs 85-90 a share quoted on May 1. The LIC GMP wiped off gains and traded flat on May 9, at Rs 5-10 a share, and has remained in the negative territory, i.e. Rs (-) 25-30 a share since May 9.

Analysts, too, expect lackluster listing of the insurance behemoth as markets enter the bearish zone, and as foreign investors gave a lukewarm response to the issue. While policyholders and employees dominated the subscription numbers at 5.97 times and 1.94 times, respectively, retail investors, qualified institutional buyers (QIBs) and non-institutional investors’ (NIIs) booked 1.94 times, 2.83 times and 2.8 times, respectively. The issue offer for LIC was in the price band of Rs 902-949. While policyholders were offered Rs 60 discount per share, retail investors received a discount of Rs 45.

"The discount in the grey market is driven by sell-off in broader markets, bulky issue size, and moderate response seen in QIB and NII categories of the IPO," said Manan Doshi, co-founder of UnlistedArena.com.

Though the government trimmed issue size to 3.5 per cent from 5 per cent, analysts remain speculative of the bulky issue size to act as a dampener in a selloff environment.

"The history of big IPOs signals a muted listing due to huge offer sizes. Hence, investors may get disappointed with flat-to-negative listing, also driven by weak support from global and domestic headwinds," said Ajit Mishra, VP - Research, Religare Broking.

That said, from a long-term perspective, analysts believe the issue's price to embedded value (P/EV), which is at a significant discount compared to the listed private life insurance players, gives comfort. "HDFC Life is trading at P/EV of 4.1x, SBI Life at 2.9x, and ICICI Prudential Life at 2.2x. With LIC’s diverse portfolio of insurance, the company is well-placed owing to its omni-channel distribution network, strong brand, and valuation comfort," said analysts at Reliance Securities.  

LIC is the biggest player in India's life-insurance industry, commanding 61.4 per cent and 61.6 per cent market share in new business premium and gross premium, respectively. According to a report by CRISIL, the gross premium of India's life insurance industry is expected to clock 14-15 per cent CAGR over FY21-FY26. Hence, analysts believe that the huge market opportunity bodes well for this insurance behemoth.

"LIC is primed to benefit from upcoming growth opportunities given its entrenched branding, large agency workforce, and new strategic roadmap aimed at increasing bancassurance, product-mix, and foray into cross-sales," said analysts at BOB Capital Markets.

Ajit Mishra of Religare Broking, too, added that with over 25 crore LIC policyholders and 4-5 times growth in demat account holders, the insurance behemoth is primed to gain in the long-term horizon. Hence, we suggest investors to remain patient.