LIC IPO fully subscribed on day 2 of opening; offer closes on May 9

Sees participation from 3.6 mn individual investors; policyholders lead

State-owned Life Insurance Corporation of India’s (LIC’s) initial public offering (IPO), the largest ever in the domestic market, was fully subscribed on Thursday -- the second day of the issue.

The IPO, which will remain open till Monday, has so far generated bids worth Rs 20,744 crore, including the Rs 5,628 crore raised from anchor investors. Small investors have poured in over Rs 12,000 crore in the IPO. Sources said the issue had seen participation from 3.6 million individual investors from across India and expectations were that the total applications figure would hit a record 10 million.

At the end of day 2, the policyholders’ quota had seen over three times more demand than the shares on offer, while the employees’ portion was subscribed 2.22 times. The retail investor quota, the largest of the lot, was subscribed 93 per cent. The qualified institutional buyer (QIB) and high networth individual (HNI) categories were, on the other hand, subscribed 40 per cent and 47 per cent, respectively. Most bids in the QIB and HNI categories are expected to come on the last day of the issue.

The encouraging response to the issue comes despite volatility in the secondary market following the Reserve Bank of India’s (RBI’s) surprise move to increase the repo rate by 40 basis points to tame the soaring inflation. 

Overseas investors have placed hardly any bids in the IPO so far.

Market players said LIC’s strong brand recall, coupled with the additional discount for small shareholders, had enthused many first-time investors about the IPO. The government has set the IPO price band at Rs 902-949 per share, with an additional discount of Rs 45 for retail investors and Rs 60 for the policyholders.

At the upper end of the price band, LIC will have a market cap of Rs 6 trillion, making it India’s fifth most valuable firm. The insurance giant had an embedded value (EV) of Rs 5.4 trillion as of September 2021. The IPO values the insurer at 1.1 times EV, lower than its private sector peers, which currently trade between 2 and 3.5 times their EV.

In February, when LIC filed its offer document with Sebi, the IPO size was pegged at Rs 60,000 crore, while LIC’s valuation was pegged at Rs 12 trillion.

Considering volatility in the secondary market and risk-off sentiment among foreign portfolio investors (FPIs) due to factors such as monetary policy tightening by the US Fed and Russia’s attack on Ukraine, the government opted to lower its dilution and LIC’s valuation. The Centre, which holds 100 per cent stake in the company, is diluting only 3.5 per cent stake, after obtaining special permission from Sebi. Otherwise, regulatory norms would have required the government to dilute at least 5.8 per cent in the IPO.

Going by the day 2 subscription numbers, the government could have underestimated the demand, say market watchers. For the first time, individual investors have also been allowed to place their bids on weekends. The RBI has directed banks to remain open on Sunday for LIC’s IPO.

LIC’s IPO has kicked off an account opening frenzy with brokers. Several brokers said they were witnessing a spurt in new account openings from first-time investors, especially from smaller cities, wanting to place bets on the IPO.