Small-town individual investors with an emotional connection to India’s oldest insurer and its long-standing policyholders are likely to fuel demand for the country’s biggest-ever IPO, even as nervous markets meant deal size was cut by more than half.
The state-run Life Insurance Corporation of India is taking retail investor orders between May 4 and May 9 for a listing that could fetch as much as $2.7 billion in the new reduced price range. Russia’s invasion of Ukraine and rising US interest rates are keeping foreign money away from emerging-market stocks, but investment advisers say the mammoth insurer’s float is likely to be bought up by big investors.
“There are IPOs and then there are LIC stock sales. Both are completely different things,” said Pallav Bagaria, Director at Sapient Wealth Advisors & Brokers Ltd. based in Pune company.”
Founded in the late 1950s, LIC was the country’s only insurer until the government opened the market to private competition in 2000. It remains India’s largest insurer with a sales representative in almost every neighborhood, even in the smallest towns.
Many people who grew up in the 1960s have an “emotional commitment” to LIC, which they see as synonymous with insurance, said Vikaas Sachdeva, chief executive officer at Emkay Investment Managers Ltd.
“There’s quite a fuss about the issuance of shares because it’s a phenomenal brand that’s been around for years,” said Sachdeva, who said he’s received a spate of calls from his father’s friends and family asking for help the stock asked for an IPO.
He said the government’s decision to reduce free float by making shares cheaper and making transaction sizes smaller only made him “more enticing”.
“India’s largest state life insurer Life Insurance Corporation’s low valuation multiple and reduced bid size could allow its listing to attract decent bids… The lower valuation compared to smaller listed peers is in line with our expectations due to LIC’s lagging new business margin, less diversified products and fewer distribution channels.”
The Indian government is selling 221.4 million LIC shares at prices between Rs 902 and 949 per unit, which would raise up to Rs 210 billion at the higher end of the range – well below the previous target of Rs 500 billion.
Retail investors will be allotted 35% of the total shares in the offering and receive a Rs.45 discount off the IPO price; 10% of the free float is now earmarked for LIC policyholders, who receive a discount of Rs. 60 on each share. The minimum bid size is 15 shares, meaning a retail investor would have to shell out at least 13,560 rupees (US$177) for a stake. Policyholders must spend at least 13,335 rupees.
“This investment is like insurance. We’re sure we won’t fall into the trap of the wrong company or a nightly operator,” said 74-year-old Ravi Gogia, a former employee of
., which plans to bid for the shares of LIC in the IPO.
growth headwind
Still, not everyone is a fan as some investors are wary of buying into a slow-growing insurer at a time when the Indian IPO market is struggling.
Bloomberg“I think LIC is too big a company to post strong annual revenue growth from now on,” said Aditya Chawan, a 34-year-old consultant at a global technology company in India, who has been an investor in shares for five years.
LIC has a 60% share of the Indian life insurance market with 24 companies, but its influence is shrinking as private players like HDFC Life Insurance Co. Ltd. and SBI Life Insurance Co.Ltd. expand. The private sector has been on an aggressive expansion trajectory during the pandemic, raising premiums on new individual policies while LIC has struggled.
“The long-term history of these private life insurers – that they are consistently gaining market share from LIC – remains unchanged,” said Avinash Singh, analyst at Emkay Global Financial Services Ltd.
It doesn’t help, some investors said, that LIC hasn’t declared a clear dividend policy or that the IPO market is struggling. The S&P BSE IPO Index, a measure of newly listed stocks, is down 15% this year after nearly tripling in the previous three years. Mobile Payments Company
– India’s biggest pre-LIC IPO – is the worst performer of the index, which has fallen 70% since its much-anticipated float in November.
Meanwhile, LIC and the country’s major brokers continue to build momentum for the stock sale. LIC has been promoting the float in newspapers since the beginning of the year and is also offering its 286 million policyholders easy access to brokerage accounts to buy into the float.
Axis Securities Ltd. opened around 45,000 accounts for potential LIC IPO investors last month, while ICICI Securities Ltd. Attracts potential new investors with offers such as free brokerage accounts and access to its online trading training courses. Vijay Chandok, chief executive of ICICI Securities, said the brokerage firm has refined its IPO application process and made it more user-friendly, with first-time subscribers in mind.
–With support from Adrija Chatterjee.
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