LIC's grey market premium slips as stock market crashes 900 points
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Grey market premium (GMP) of Life Insurance Corporation of India (LIC) on Friday declined to Rs 50 amid the ongoing sell-off in the domestic equity market. The premium was at Rs 65 since May 4 in the unlisted market, according to IPO Watch. The figure was at Rs 90 on April 30.
However, the ongoing initial public offer (IPO) of LIC got subscribed by 1.07 times on the third day of the offer till 10.27 am (IST). Quota reserved for policyholders and employees got oversubscribed by 3.25 times and 2.34 times so far. The portfolio reserved for retail investors got subscribed 0.98 times, while the category reserved for QIB and NII was subscribed 0.40 times and 0.49 times, respectively.
The public offer has received bids for 17,39,68,080 shares so far against the offered 16,20,78,067 equity shares offered by the company. The IPO is through an offer-for-sale of up to 221,374,920 equity shares of the face value of Rs 10 each.
LIC has fixed a price band of Rs 902-949 for the public issue, which will close on May 9. At the upper price band, the insurer will have an estimated market capitalisation of Rs 6 lakh crore. The company has offered a special discount of Rs 45 per share to retail investors and employees of LIC. Moreover, there is a discount of Rs 60 for policyholders.
Meanwhile, the benchmark equity index BSE Sensex traded 902 points, or 1.62 per cent, down at 54,799 in the morning trade following weak global cues. Market sentiment dampened further after India Ratings said inflation, supply chain disruptions and a weak consumption demand could upset the revival in credit growth in the medium term.
Some pessimism also came in as a consequent to the 40 basis point hike in the repo rate announced by the Reserve Bank of India (RBI) on Wednesday, large banks such as ICICI Bank and Bank of Baroda have raised their lending rates by an equal amount on loans linked to the external benchmark.
Coming back to LIC IPO, brokerages have given a 'Subscribe' rating to the issue for listing and long-term gains. According to Geojit Financial Services, LIC is available at a P/EVPS (embedded value per share) of 1.1 times which is at a discount of 65 per cent compared to the average valuation of private life insurance players. Even though headwinds like declining market share, lower short-term persistency ratios and sub-par margins demand a discount to private players, the current valuation is attractive considering its strong market presence, improvement in profitability due to changes in surplus distribution norms and strong sector growth outlook.
KR Choksey Shares and Securities said, "The company to focus on its strong growth momentum by gaining its market share and focusing more on underwriting quality and the high margin product mix. Given the growth prospects for the pension and annuity segment and the company's position as the market leader in the insurance sector, the company's valuation will be at par with its private peers. Investors can subscribe to the IPO for listing as well as long term gains."
