Shares in Life Insurance Corporation dropped more than 8 per cent on their stock exchange debut on Tuesday, as India’s biggest initial public offering landed at a turbulent time for global asset markets.
India’s government raised Rs210bn ($2.74bn) selling 3.5 per cent of the state-run life insurance company this month. The offering was 2.95 times oversubscribed, drawing anchor investors including Norwegian and Singapore sovereign funds as well as enthusiastic retail participation.
But LIC’s shares opened at Rs872, compared with their listing price of Rs949. They later recovered slightly to Rs874, implying an equity value of Rs5.5tn, or $71bn.
Some analysts attributed the first-day drop to the weakness in the wider market: India’s Nifty 50 stock benchmark is down more than 5 per cent this month, in what one broker, who asked not to be named, described as “absolute mayhem”.
“It’s lack of confidence within the market for now rather than an issue with the company,” said Jignesh Shial, an analyst at InCred Capital, commenting on LIC’s first-day fall.
The investor concern around the life insurer’s close relationship with the government, which has weighed on sentiment for the fundraising, was surely “priced in”, he argued.
The historic IPO, beating last year’s $2.5bn Paytm listing to rank as India’s biggest ever, had been slashed to about half of its expected raise and delayed by market jitters following Russia’s invasion of Ukraine and gradual withdrawal of pandemic era stimulus by central banks.
Hemang Jani, equity strategy head at Motilal Oswal Financial Services, argued that the issuance was well-priced but a victim of bad timing: “When initially they (the government) came up with this plan to do the divestment there was a lot of interest . . . But by the time they could finally launch the issue the overall market sentiment had dampened quite a bit.”
Despite its lacklustre debut on bourses, LIC’s market entrance is a big moment for India’s insurance sector. LIC held a monopoly on selling life insurance in the country for almost 40 years, growing to manage assets of $495bn — more than three times that of all other life insurers in India, its prospectus said. “Their scale is something that we can’t imagine,” a senior insurance executive said when the IPO was announced in February.
But some investors have worried about its potential for further growth, as private participants chip away at its more than 60 per cent market share of premiums — as well as the risks that come with its government ties. LIC’s prospectus said it “may be required to take certain actions in furtherance of the [government’s] economic or policy objectives”.
However, Mohammed Ali Londe, senior analyst at Moody’s, said LIC’s IPO came amid a larger trend towards reform of the still dominant state-owned insurers.
Whereas state-owned insurance companies had previously focused on “customer maximisation rather than profitability,” Londe said, the focus was shifting to better risk management, and therefore increasing earnings.