scorecard
  1. Home
  2. stock market
  3. news
  4. LIC IPO sees poor demand due weak market conditions and RBI’s sudden rate hike, say analysts

LIC IPO sees poor demand due weak market conditions and RBI’s sudden rate hike, say analysts

LIC IPO sees poor demand due weak market conditions and RBI’s sudden rate hike, say analysts
  • The insurance behemoth Life Insurance Corporation of India (LIC) witnessed tepid demand on the first day of issue as it was subscribed just 0.63 times.
  • In fact, the grey market premium of the company’s stock fell to ₹65 from ₹85 earlier.
  • Analysts believe demand for the largest IPO fell after RBI made a sudden move to hike interest rates.
The Life Insurance Corporation of India (LIC) IPO – largest in the history of the Indian stock market – opened yesterday, but the tepid demand might have surprised retail investors and market observers. Considering the huge excitement and enthusiasm in the run-up to the LIC IPO, it was unexpected for the issue to be subscribed only 0.63 times.

However, there are several reasons for the sudden dip in demand. One is the Reserve Bank of India’s (RBI) surprise move to hike interest rates by 40 basis points at 2 pm on May 4. The announcement was unlikely as RBI has been behind the curve till now as it was waiting for inflation to cool down even though central banks across the world have been hiking rates. Rising global prices of fuels and other commodities are the factors influencing such decisions.

Following the announcement, Sensex tumbled more than 2% hitting the investor sentiment to invest in the market.

“There can be many reasons assigned for low subscriptions: 1) The RBI rate hike by 40bps must have created a sentiment of volatile markets in coming days which might have lowered listing gains expectations for investors. 2) RBI’s decision could impact the financing for individuals such as high net-worth individuals (HNI) who require financing thus limiting the oversubscription 3) The grey market premium (GMP) for LIC has reduced due to the existing market conditions which might have lowered investor sentiments,” said Manoj Dalmia, founder and director at Proficient Equities.

Today is Day 2 of the six days of the IPO and the subscription number has increased to 78% (0.78 times). Market timings to place subscriptions for LIC IPO is 10 am to 7 pm.

Another factor behind the seemingly weaker-than-expected response to the LIC IPO could be the size – at INR 21,000 crore, this is India’s biggest IPO yet. At 78% subscription right now, the issue has received bids worth INR 16,380 crore – smaller-ticket IPOs would have been subscribed several times more at this pace.

Investor category

Subscription

Qualified institutional buyers

0.34 times

Non-institutional investors

0.30 times

Retail

0.71 times

Policyholder

2.40 times

Employees

1.56 times

Overall

0.79 times


The government is looking to raise ₹21,000 crore by selling 22.13 crore shares or 3.5% stake in the life insurance behemoth, the fifth largest insurer in the world.

Meanwhile, the government is doing all it can to ensure there is enough demand as the IPO also has a five day permit to remain open for subscription unlike usual 3 days. The RBI has directed all ASBA-designated (application supported by blocked amount) bank branches to remain open to the public on Sunday as well to facilitate processing of applications for the LIC IPO, which will run for six days instead of the usual three days.

The grey market premium of the company’s stock fell to ₹65 from ₹85 earlier.

Adding to the woes, the IPO received poor demand even from foreign investors as very few showed up for anchor investments. On the positive side, domestic mutual funds compensated for the absence of FIIs.

Analysts remain optimistic, say issue is reasonably priced

However, analysts believe the demand will return as the issue is priced reasonably for investors to make money.

The price band of the IPO is fixed at ₹902-₹949 per share, which most analysts believe is low compared to other players.

“The real element in the room (for low subscription) was the RBI decision. I think the LIC IPO will sail through and I think it’s a fair investment and there will be enough people who are very patriotic towards LIC, who will subscribe to it,” Sanjiv Bhasin, director at IIFL Securities told Business Insider.

He explained how LIC cannot be compared to Paytm’s IPO, which is the second largest IPO and is now below its issue price because of high valuation then. “Don’t compare two apples as a price is set reasonably for people to make some money over a period of time,” said Bhasin.

SEE ALSO:
Rainbow Children’s Medicare IPO: Here’s how you can check the allotment status
LIC IPO: Second day to subscribe to the issue post poor demand on Day 1; GMP falls to ₹65

READ MORE ARTICLES ON


Popular Right Now




Advertisement