The premium on shares of Life Insurance Corporation of India in the grey market climbed 80 percent on April 28, with the company’s initial public offering – the largest in the country – set to open next week.
LIC shares commanded a premium of Rs 45 over the higher end of the price band set for the IPO, compared with Rs 25 on April 27, according to IPOWatch, which tracks unofficial prices of upcoming IPOs, also known as the grey market prices. Experts expect the grey market premium to inch higher closer to the launch date.
The LIC IPO opens on May 4 and closes on May 9. The price band has been set at Rs 902 to Rs 949, with a discount of Rs 60 for policyholders and Rs 45 for employees.
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The grey market price generally indicates the price at which shares will list. Based on the grey market price on April 28, shares of the state-owned insurer may list with a 5 percent gain, although this may change later.
The government is offering 221.3 million shares, equivalent to a 3.5 percent stake in the company, in the IPO. The offer has been scaled down from the initial plan to sell 310 million shares in February.
The government said the decision to list LIC in May was taken after taking into account factors such as market demand, market volatility, domestic flows and the company’s performance.
At the upper end of the price band, the government hopes to garner Rs 21,000 crore compared with Rs 60,000 crore previously. Consequently, LIC’s valuation is now estimated at almost Rs 6 lakh crore compared with Rs 17 lakh crore earlier.
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“After the revised valuation, the IPO has not become cheap but fair and will now depend on how its business is executed over the next few years to forecast the additional returns,” said Mohit Nigam, head-PMS, at Hem Securities.
Investors can bid for a minimum of 15 shares and in multiples of 15 thereafter. Over 15.8 million shares are reserved for LIC employees and 22.1 million shares are reserved for LIC policyholders.
Half of the issue size is meant for qualified institutional buyers and 35 percent of the shares will be available for retail investors, with 15 percent for non-institutional investors.
Shares will be allotted to successful bidders on May 12 and refunds will be credited to the accounts of unsuccessful bidders on the same day. LIC shares are scheduled to list on the stock exchanges on May 17.
The IPO has generated interest among retail investors who have opened accounts to hold shares in dematerialised (demat) or digital form, a prerequisite for investing in the stock markets.
“There is a fair degree of interest in the LIC IPO from retail investors,” said B Gopkumar, MD of Axis Securities. “We opened around 45,000 accounts for the IPO alone last month. Of these, 40 percent of customers are new to the market.”
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Gopkumar said while near-term market volatility is likely to weigh on the stock, Axis Securities is positive from the long-term perspective. Given the growth potential of insurance and the financialization of savings, he expects LIC to maintain its leadership.
“With the LIC IPO coming up, we believe that May will be a record month for demat account openings in recent times,” said Varun Sridhar, CEO of Paytm Money.
He considers the LIC IPO a milestone event for India’s capital markets and one that is expected to attract millions of new investors.
LIC is India’s largest life insurer, with a market share of 61.6 percent in terms of gross written premium (GWP), 61.4 percent in terms of new business premium, and 71.8 percent in terms of individual policies issued.
It had the widest lead in terms of market share by life insurance GWP relative to the second-largest life insurer in India and is ranked fifth globally by life insurance GWP and 10th globally in terms of total assets.
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