LIC listing: How private sector peers fared in their debut

India’s insurance whale, Life Insurance Corporation of India (LIC) will list today amid volatile equity markets. The initial public offer (IPO) of LIC fetched Rs 21,000 crore for the government at a price of Rs 949 per share.

While the IPO size itself has been pruned from the initially expected amount, the issue witnessed robust demand, reflected in the large oversubscription from all categories of investors. To that extent, LIC has managed to keep the sentiment of investors buoyant amid discomforting market dynamics. Its listing comes at the backdrop of roughly 8 percent fall in benchmark equity indices over the past one month. Rising inflation and the specter of policy rate hikes have triggered concerns over corporate profitability and dampened market sentiment.

Also read: LIC listing today: What should investors do with the stock after it debuts on bourses?

Listing gains are more a function of broad market sentiment and conditions and not just the share issuing company’s business fundamentals alone. LIC’s listing, if tepid, need not dismay its investors. As the country’s largest life insurer is poised to list, it pays to look at the performance of its private sector rivals:

ICICI Prudential Life Insurance Company

Listed private sector life insurance companies have had their soft periods after their IPOs. Among them, ICICI Prudential Life Insurance Company was the first to list in 2016. Recall that the life insurer’s shares listed at 11 percent discount to its issue price of Rs 334 per share. On the day of its listing, benchmark equity indices were under pressure. It took the company’s shares more than three months to reach its issue price.

Beyond the listing day, the shares have seen episodes of underperformance versus the broader market which was largely driven by the company underlying business performance. As such, the company’s shares were under pressure owing to the pandemic.

Be that as it may, more than five years since listing, ICICI Prulife’s shares are now 58 percent above the issue price. An improvement in business grwoth metrics have played a big part in generating returns for its investors.

SBI Life Insurance Company

The largest private sector life insurer offered its shares to the public for the first time in October 2017 through an IPO. Amid strong market conditions, SBI Life’s shares listed at 5 percent premium on October 3, 2017. Since then, the shares have followed a robust trajectory, mostly helped by the company’s strong performance. SBI Life’s shares have been more volatile than its other peers, in part reflecting the volatility in its business performance as well. After a brief period of underperformance versus broad market in 2019, shares notched up sharp gains. Since the pandemic, SBI Life shares have given investors better gains than other listed peers. Investors in its IPO are sitting on 52 percent gain as of today.

HDFC Life Insurance Company

HDFC Life is the most valuable private sector insurance company and its business performance gave enough reasons for investors to cheer. The company launched an IPO weeks after rival SBI Life concluded its own. HDFC Life notched up 7 percent premium over its issue price on listing day. Its IPO investors are richer by 89 percent today. Much of this has been due to the life insurer’s superior profitability metrics. Its value of new business and new business margins have consistently been above that of rivals. Even during lean times post the pandemic, HDFC Life’s profitability metrics have been resilient. That said, its valuations have come under pressure partly due to anticipated regulatory limitations that may arise from the proposed HDFC and HDFC Bank merger. Further, the company saw a sharp rise in death claims due to the pandemic which dampened its earnings outlook somewhat.

LIC’s peers have had varied listing experiences, depending on the market conditions at that time. However, beyond the listing day the performance of the stock has closely followed that of the business. This is evident from ICICI Prulife’s lackluster performance as business growth became a brief casualty of changed priorities. SBI Life’s stock witnessed a period of pressure when the company failed to meet market expectations on business growth and HDFC Life disappointed investors after the pandemic took off some of its profitability shine.

To ensure returns to its investors beyond the ultra short term, LIC just needs to demonstrate an improvement in its business metrics. It should start with arresting the market share loss the insurance behemoth has witnessed over the past decade.