LIC IPO: GMP falls 40% in a week; can investors see a listing pop?

India’s biggest-ever initial public offering (IPO) – Life Insurance Corporation of India - kicked-off on Wednesday, May 4. As of 12:06 pm, the issue was subscribed 28 per cent, led by policyholders, employees and retail with 99 per cent, 48 per cent, and 31 per cent, applications respectively. GET ALL SUBSCRIPTION UPDATES HERE
 

According to data by IPO Watch, shares of LIC were trading at Rs 65 premium in the grey market, which implies the stock is expected to debut bourses at more than Rs 1,000. Over the past one week, the Rs 21,000 crore LIC issue saw a fall of 40 per cent in grey market premium (GMP) from a week ago, stockwatchers said, amid market volatility.

WATCH VIDEO: What makes LIC IPO a long-term investment bet?

Despite government’s 3.5 per cent stake dilution, analysts remain cautious of the issue’s enormous size and suggest a limited upside when the stock lists at the exchanges. “Though the IPO is likely to generate strong subscription numbers, we expect grey market to remain volatile due to the issue size,” said Manan Doshi, co-founder of Unlisted Arena.
 

Meanwhile, muted excitement was seen from qualified institutional buyers and non-institutional investors. While no response was seen from qualified institutional buyers, non institutional investors subscribed only 6 per cent of the issue. “A strong institutional demand usually drives listing pop; however, we do not expect issue to be oversubscribed unlike previous IPOs. We expect flat-to-negative listing of LIC due to volatile markets and huge size,” said Shivam Bajaj, founder and CEO at Avener Capital.

On the contrary, analysts anticipate volatility in the grey market to moderate after the US Federal Reserve (US Fed) clears uncertainty over rate hike in its May meeting. “The volatility seen in GMP is driven by recent weakness in domestic markets and uncertainties ahead of the Fed meeting. Although the massive size of the IPO may limit huge oversubscription numbers, the IPO is expected to provide decent listing gains,” Vinod Nair, Head of Research, Geojit Financial Services said. 
 

Earlier, the insurance behemoth garnered Rs 5,620 crore from anchor investors, out of which 71 per cent was allocated to 15 mutual fund houses. Meanwhile, marquee investors include Government of Singapore, Invesco India, BNP Investments LLP, Saint Capital Fund, among others.


 

As LIC dominates 64.1 per cent of the market share in terms of premiums and 66.2 per cent in terms of non-premiums, analysts remain speculative of whether the government-owned insurance firm carries more room for growth. The government hopes to raise Rs 21,000 crore from the issue.
 

The LIC IPO will remain open for retail investors on Saturday, May 7 in a bid to attract retail investors on the back of its sheer size. “The extended period for the IPO application will help in attracting better retail participation. We expect the GMP to improve in the coming days on better retail demand and as global concerns over Fed policy subsides,” Vinod Nair added. The five-day issue will close on May 9 and is likely to debut bourses on May 17.