India's LIC shares slump after country's largest listing

Life Insurance Corporation accounts for two-thirds of the country's life insurance market providing coverage for more than 250 million people

Life Insurance Corporation of India chairman M R Kumar and chief executive of the Bombay Stock Exchange, Ashishkumar Chauhan, hit the ceremonial gong during the company's listing ceremony in Mumbai, oShow more

Shares in Life Insurance Corporation of India slumped about 8 per cent as the state-owned company made its market debut on Tuesday, amid weak investor sentiment due to recent equity market volatility.

LIC’s share price closed at 875.45rupees ($11.29) a share on the BSE Sensex on Tuesday. Despite the disappointing opening analysts remain optimistic about the outlook for the stock.

LIC's trading debut was eagerly awaited after the government's $2.7 billion sale of a 3.5 per cent stake in the company, making it India's largest ever initial public offering.

LIC accounts for two-thirds of India's life insurance market, providing coverage for more than 250 million people.

But market conditions have been tough. Russia's invasion of Ukraine and the US Federal Reserve's tightening of liquidity with rate hikes have fuelled a downturn in India's stock markets.

The benchmark S&P BSE Sensex has lost more than 10 per cent since the start of the year.

“Though the LIC listing has been below the issue price of 949 rupees [a share], given the attractive valuations, we expect some buying interest in the stock both from retail and institutional investors,” said Hemang Jani, the head of equity strategy, broking and distribution, at Motilal Oswal Financial Service.

Founded in 1956, LIC is a household name. Investors flocked to buy shares in the company when its IPO was launched earlier this month. The shares on offer were oversubscribed by almost three times.

Given the challenging environment, the government did delay and scale back plans to sell a 3.5 per cent stake, rather than the 5 per cent it had been considering.

The public float raised much-needed funds for New Delhi, which is trying to manage its budget deficit, as government finances have been hit by the Covid-19 pandemic, while higher oil prices are only adding to the strain.

The listing is part of a broader plan to sell state assets to bolster government finances.

Demand for the public offering "has given us a very optimistic view of the capital markets going forwards, despite the present headwinds. In markets you have ups and downs, we all know” said Tuhin Kanta Pandey, secretary of India's department of investment and public asset management, at the LIC listing ceremony on Tuesday.

Sovereign wealth funds from Norway and Singapore were among the anchor investors.

A number of policyholders and other small retail investors, including first-time stock market investors, also snapped up shares in LIC.

There has been a lot of optimism around the insurer's listing, given the pedigree of the company and the enormous growth potential of the life insurance market in India, which analysts say is underpenetrated.

Competition with private insurers has been increasing, however, and LIC's market share has declined — although it is still India's largest insurer by far.

“There may be a bit of retail selling today due to the current sentiments in the overall market, but the long term fundamentals of LIC remain intact,” said Girirajan Murugan, chief executive of FundsIndia, an online investment platform.

“Once the dust settles on the market regarding the continuing issues related to the Ukraine-Russia war and the worries on the inflation front, stocks in the insurance sector along with other beaten-down stocks in the banking and non-banking finance space should see good momentum.”

Still, shares of many of India's state-run companies that went public have not performed well.

Half of the 21 state-run entities that have listed on the stock exchanges are trading below their issue price.

In addition, several companies in India that had IPOs last year are trading down sharply on their listing price.

Among these is the digital payments firm PayTM. Its listing was eagerly awaited but its shares are now trading at about a quarter of the issue price.

Analysts say that LIC's valuation was fair and, as a long-established company, it is likely to fare better. But its performance going forward will continue to be monitored very closely.

On Tuesday, its share price fell despite the broader BSE Sensex gaining 2.5 per cent.

“The performance of LIC's stock post listing will have a near-term sentiment impact on markets,” said V K Vijayakumar, chief investment strategist at Geojit Financial Services.