LIC to make its debut tomorrow. What does it hold for the investors?

The shares of India’s largest life cover provider Life Insurance Corporation of India (LIC) are set to make their debut on the bourses on May 17. Going by the prevailing market trends, experts predict a lacklustre listing for the shares of the country's largest asset manager.

The government raised Rs 21,000 crore by liquidating 3.5 percent of its stake in the biggest initial public offer (IPO) in the history of the Indian primary markets so far. The mega IPO which opened for subscription on May 4 and closed on May 9 was subscribed 2.95 times with bids worth Rs 45,000 crore received across investor categories. The shares were allotted to the successful shareholders on May 12 at the upper end of the Rs 902-to-Rs 949 price band.

Investors are now eagerly waiting for the price at which the stock will get listed on May 17.

According to the latest trends in the grey market, the company’s unlisted shares were trading at Rs 934 apiece on Saturday (May 14), a discount of Rs 15 to the upper limit of the IPO price band, as per IPO Central, which tracks the grey market premium. The grey market premium entered into the negative territory on May 11 when it was trading at a discount of Rs 5 per share to its price at the higher end of the price band. Since then, it has not been able to spring back into the positive zone. In fact, the highest premium that the stock commanded was Rs 80 per share on May 4, the opening day of subscription. Since then the grey market premium has been on the slippery ground and has declined consistently, as per IPO Central.

Experts blame the decline in grey market premium of LIC stock to the sell-off in the global equity markets which is fuelled by the lack of clarity on interest rate hikes by the US Fed and the worsening geopolitical situation in Eastern Europe.

“The LIC IPO may face weak market sentiment and lower listing due to higher inflation data, continuous outflow by FIIs (foreign institutional investors), and the weakening of the currency that contributed to the fall of the Nifty and the Sensex by more than 10 percent,” said Nitesh Shah, CEO-Wealth, Elara Securities India.

However, despite gloomy market sentiments, the LIC offer successfully managed to sail out with better-than-expected subscription figures led by a strong demand from retail policyholders, retail investors and employees of the insurer.

“Unofficial grey market premium is trading down into the negative territory mainly on the back of depressed global markets which are in the bearish zone since the beginning of the Russia–Ukraine war and selling pressure has continued in domestic markets wherein FIIs have remained net sellers,” said Prashanth Tapse, Research Analyst and VP-Research at Mehta Equities. FIIs have pulled out Rs 70,000 crore during the current financial year till date.

“Considering all the parameters, we expect a soft listing at +/- 5 percent of the offer price. But the LIC offer was never considered as a listing gain candidate, rather it should be looked for long term only,” added Tapse.

The external factors impacting the Indian equity markets have added to the volatility significantly. The India VIX, which indicates the degree of volatility traders expect over the next 30 days, has been maintaining elevated levels of above 20 for quite some time now. India VIX is now prevailing at 23.48 levels.

“We expect the IPO to list at par or a slight premium, given that the issue was amply oversubscribed if the market stays normal,” said Sonam Srivastava, Founder at Wright Research. “However, if there is increased volatility, we could see the shares listing at a negative premium.”

LIC had offered a discount of Rs 60 to its eligible policyholders while a discount of Rs 45 was offered to retail investors and employees which means the issue price is set at Rs 889 per share for its policyholders and Rs 904 per share for retail investors and employees.

“We believe that the listing would be tepid, given weak global cues, however, retail investors will be able to benefit on account of discount given to them,” said Vinit Bolinjkar, Head of Research at Ventura Securities Ltd.

Experts hope that though the IPO may not be able to escape the impact of prevailing market conditions fully, the low float of the stock and overwhelming response from the policyholders and employees may still save investors from the jolt of listing at a significant discount.