LIC IPO: As grey market premium tumbles, what should investors do?

The Life Insurance Corporation of India (LIC) will list its shares on the domestic stock exchanges on Tuesday. The largest life insurer in the country saw tremendous response from investors when its initial public offering closed a week ago, with the issue being subscribed almost three times. However, the bidders are now at the edge of their seats as the issue trades at a slight discount on the grey market.

Shares of LIC were trading at a discount of ₹12 to ₹20 in the unofficial grey market, compared with a premium of ₹40 when the IPO closed last Monday. While grey market premium is not definitive indicators of how a share will perform on the listing day, the LIC stock might list on par or even at a discount. The issue price of the LIC IPO has been pegged at ₹949, the upper limit of the price band.

A bevy of factors have dampened investor sentiment in the market. Increased volatility amid skyrocketing inflation, rising interest rates and weakening rupee have spooked investors, leading to a sell-off in the market. The ongoing Russian invasion of Ukraine and the uncertain scenario around Covid-19 are further hampering sentiments on the global front.

Fears over loss of market share to private players, concerns related to profitability and revenue growth, and persistence ratio — the portion of policyholders who pay renewal premium — are also aggravating investors’ worries.

With the LIC shares credited into their demat accounts on Monday, investors are now exploring available options a day before the listing — whether to sell the share if it lists at a premium or hold it for long-term gains.

Analysts are of the view that investors should hold the LIC shares for mid- to long-term. Those planning to buy the shares on listing day need to account for market volatility.

The issue raked in ₹20,557.23 crore, the prospectus further shows, cementing the IPO as the largest ever in the country. The offer size is subject to finalisation on the basis of allotment, the insurer clarified in the document.

The central government is planning to dilute 3.5% of its stake in LIC under its ambitious disinvestment spree to raise funds. The issue size was revised downwards from 5% on account of severe market volatility. Under the issue, 221,374,920 equity shares at a face value of ₹10 apiece are up for grabs.

The anchor portion of the LIC IPO opened on May 2, where the central government raised ₹5,627 crore as the bucket was oversubscribed.

The issue opened for the rest on May 4 and closed on May 9; bidders were allowed to submit bids even during the weekend as the government aimed for maximum investor participation. Retail investors and eligible employees were offered discounts to the tune of ₹45 per share, whereas policyholders enjoyed a discount of ₹60 per share.

The IPO was oversubscribed 2.95 times amid tremendous response from investors. The policyholder portion of the IPO has been subscribed 6.11 times, while the portion reserved for employees was subscribed 4.39 times. Retail investors bid 1.99 times the allocated bucket, and non-institutional investors’ portion was subscribed 2.91 times. The issue raised ₹43,933 crore demand against the intended offer size of ₹21,000 crore.

The allotment of shares was completed on May 12. The refunds to unsuccessful bidders began on May 13, while the shares were credited into the demat accounts of successful bidders on May 16.