Life Insurance Corporation (LIC) made a weak debut on the bourses on Tuesday as the shares dropped 7.8% to Rs 875.45 at the close of trading. LIC had listed at Rs 867.20, a discount of 8.6% over the issue price of Rs 949 after a successful initial public offering which fetched Rs 20,557 crore to the government.
The insurer’s shares made a day’s high of Rs 920 on the BSE and the day’s low was Rs 860.10 on the BSE.
The uncertainty in the markets was the main reason for the decline, LIC said. MR Kumar, Chairman, LIC, said, “We were not expecting a big listing as markets were jittery. It (stock price) will pick up as we go along.” He further added that policyholders who have missed out on allotment during the initial share sale will pick up the shares now.
As of Tuesday’s closing, LIC is now the fifth largest company based on market capitalisation of Rs 5.53 trillion, ahead of Hindustan Unilever and others. Its market capitalisation lags behind Reliance Industries (Rs 17.12 trillion), TCS (Rs 12.6 trillion), HDFC Bank (Rs 7.2 trillion), and Infosys (Rs 6.3 trillion), according to data available on exchanges. Additionally, the country’s largest insurer got a place in the BSE’s A group securities on the debut day itself, BSE MD & CEO, Ashishkumar Chauhan said.
Experts believe that LIC will remain a long-term bet amid the growth story of the entire insurance industry and will create long-term value for investors. B Gopkumar, MD & CEO, Axis Securities, said, “LIC’s sustained market leadership position, robust pan-India distribution network, and shifting focus towards profitable products, thus supporting margins and improving persistency ratios, will collectively make LIC an attractive pick from a long-term perspective.”
Tuhin Kanta Pandey, Secretary, Dipam, said that the successful listing of the insurer marks a moment of ‘Atmanirbhar Bharat’ as the issue was largely dominated by domestic investors. “This was one of the greatest retail participation in an IPO ever,” Pandey said at the listing event. The public offer was also the third-largest IPO globally in the year till date, he added.
However, analysts at brokerage firm Macquarie, ahead of the listing on Tuesday, argued that a huge portion of the life insurer’s embedded value (EV) consists of marked-to-market gains and any fall in the markets can significantly affect the EV. Further, investors taking an exposure to LIC stock are indirectly taking an exposure to equity markets and the inherent volatility that comes with it. “A ~10% fall in equity markets can erode EV by ~7% which is quite significant in our view,” said Macquarie on Tuesday.
LIC’s IPO, the largest so far in the country, was subscribed close to three times during the share sale from May 4-9. However, foreign investors’ bids were only to the tune of Rs 2,291 crore in the main book and Rs 555 crore in the anchor book. The government is not keen on floating a follow-on public offer at least for the next one year. On the 25% minimum public shareholding norm stated by the market regulator, LIC need not meet the public float norm as the government, at its discretion, can exempt any listed public sector company from any or all provisions of the securities contract rules, according to brokerage firm Macquarie.