By Devidutta Tripathy and Swati Bhat
MUMBAI (Reuters) - New India Assurance Co Ltd shares fell as much as 10 percent on their Monday trading debut after a $1.5 billion initial public offering (IPO), as market participants baulked over the high valuation of the country's top non-life insurer.
The IPO raised about 96 billion rupees ($1.47 billion) for the state-run insurer and government, which fully owned New India before the IPO. But with a price far above a comparable offering this year, subscriptions reached just 1.2 times the shares on offer, indicating low demand.
India is enjoying a record year for IPOs with over $11 billion of funds raised, mainly driven by five big insurance deals. But high valuations have translated into weak post-listing share price gains for the insurers.
New India's listing follows that of state-run reinsurer General Insurance Corp of India (GIC Re), whose shares have lost 11 percent since their Oct. 25 debut following India's biggest IPO of the year so far at $1.7 billion.
The government plans to list three other state-run general insurers to help shore up finances and meet deficit targets, while a change in regulation has prompted more private-sector insurers to plan IPOs, analysts said.
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"All the biggies have found it difficult to sail through (their IPOs) so obviously the smaller ones will need to be priced at adequately attractive levels," said Arun Kejriwal, founder of Kejriwal Research & Investment Services.
Anuradha Thakur, joint secretary at the government's divestment department, told reporters in Mumbai on Monday that market sentiment would be taken into consideration after the GIC Re and New India IPOs to decide the timing and pricing of the next insurer sales.
New India is the second non-life insurer to go public after private-sector rival ICICI Lombard General Insurance Co Ltd earlier this year.
The IPO price valued New India at 76 times its earnings per share for the year ended March 2017, compared with ICICI Lombard's 48 times, Mumbai brokerage Angel Broking said in a pre-sale research note. New India's return on equity has lagged ICICI Lombard's in the last five years, the brokerage also said.
Angel Broking analyst Jaikishan Parmar said upcoming insurance IPOs must give more consideration to valuations to ensure success.
Bankers and market participants told Reuters that India's biggest state-run insurer, Life Insurance Corp of India (LIC), bid for a large chunk of New India shares, helping the IPO succeed. It was not immediately known what stake LIC was able to buy.
LIC and New India did not immediately respond to requests for comment.
By 0633 GMT, New India shares were trading 8.2 percent lower at 734.10 rupees compared with an IPO price of 800 rupees. The benchmark Nifty 50 share price index was down 0.5 percent.
($1 = 65.2850 Indian rupees)
(Reporting by Devidutta Tripathy and Swati Bhat; Additional reporting by Abhirup Roy; Editing by Christopher Cushing)
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