Business

LIC gray market premium shows that investors will benefit from listing in the initial public offering

LIC shares were trading at an unofficial premium of Rs 45 above the upper end of the offer price band of Rs 902-949, implying a 5% gain on listing, though this may change later.

On April 28, the premium on Life Insurance Corporation of India shares in the grey market increased by 80 percent, as the company prepares to launch its initial public offering – the largest in the country – next week.

According to IPOWatch, which tracks unofficial prices for upcoming initial public offerings, or grey market prices, LIC shares commanded a premium of Rs 45 over the upper end of the price band set for the IPO, compared to Rs 25 on April 27. Experts anticipate that the grey market premium will increase as the launch date approaches.

The LIC initial public offering begins on May 4 and concludes on May 9. The price band has been set at Rs 902 to Rs 949, with policyholders receiving a discount of Rs 60 and employees receiving a discount of Rs 45.

In general, the grey market price indicates the price at which shares will be listed. According to the grey market price on April 28, the state-owned insurer’s shares could list with a 5% gain, though this could change later.

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Reduced in size

The government is selling 221.3 million shares in the IPO, which equates to a 3.5 percent stake in the company. The offer has been reduced from the initial plan in February to sell 310 million shares.

According to the government, the decision to list LIC in May was based on market demand, market volatility, domestic flows, and the company’s performance.

The government hopes to earn Rs 21,000 crore at the upper end of the price band, down from Rs 60,000 crore previously. As a result, the LIC is now valued at nearly Rs 6 lakh crore, down from Rs 17 lakh crore previously.

After the revised valuation, the IPO is no longer cheap but rather reasonable, and the additional returns will now depend on how the business is conducted over the next few years,” said Mohit Nigam, head-PMS at Hem Securities.

LIC
LIC

Investors may bid for a minimum of 15 shares and thereafter in multiples of 15. LIC employees are entitled to over 15.8 million shares, while policyholders are entitled to 22.1 million shares.

Half of the issue size will be reserved for qualified institutional buyers, while 35% will be available to retail investors and 15% to non-institutional investors.

Successful bidders will receive shares on May 12 and unsuccessful bidders will receive refunds on the same day. On May 17, LIC shares are scheduled to begin trading on stock exchanges.

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Interest in retail

The IPO sparked interest among retail investors, who opened accounts to hold shares in dematerialized (demat) or digital form, which is required for investing in the stock markets.

“Retail investors have shown a fair amount of interest in the LIC IPO,” said B Gopkumar, MD of Axis Securities. “Last month, we opened approximately 45,000 accounts for the IPO alone. 40% of these customers are new to the market.”

While near-term market volatility is likely to weigh on the stock, Gopkumar believes Axis Securities is bullish on the long run. Given insurance’s growth potential and the financialization of savings, he anticipates LIC retaining its leadership position.

“With the LIC IPO approaching, we believe May will set a new record for demat account openings,” Paytm Money CEO Varun Sridhar said.

He views the LIC initial public offering as a watershed moment in India’s capital markets, one that is expected to attract millions of new investors.

LIC is India’s largest life insurer, with a 61.6 percent market share in terms of gross written premium (GWP), a 61.4 percent market share in terms of new business premium, and a 71.8 percent market share in terms of individual policies issued.

It had a significant market share advantage over the second largest life insurer in India in terms of life insurance GWP and is ranked fifth globally in terms of life insurance GWP and tenth globally in terms of total assets.

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