Still an opportunity

The public listing of India's state-owned life insurer — Life Insurance Corporation — attracting a tepid response from investors was not a completely unpredictable phenomenon. Against the IPO price of Rs 949, the shares of LIC opened at Rs 867.2 per share on the BSE (8.62 per cent lower than the issue price) and Rs 872 per share on NSE (8.11 per cent lower than the issue price). This is against Macquarie Capital Securities' initial coverage setting a price target of Rs 1,000 — way above the IPO price. Nevertheless, LIC IPO remains the biggest ever in India and the fourth-largest globally this year. It has to be noted that huge expectations around LIC IPO were already shadowed by apprehensions regarding the global turmoil unfolding in the wake of the Russia-Ukraine war. The effects of the pandemic have also not faded completely. These global phenomena have dampened investors' interest in the market in general. Notably, the majority of the investment came from LIC's own policyholders who were given a discount of Rs 60 per share. LIC employees and retail investors too were offered a discount of Rs 45 per share. However, the fact that despite the phenomenal response from the insurer's dedicated policyholder base and a heavily discounted rate, the IPO couldn't garner the expected investment, requires some serious consideration. The timing of the government's go-ahead to IPO may also be questioned. An IPO of such a scale at a time when investor sentiments are low globally appears to make very little sense. The Government of India raised Rs 20,557 crore by selling its 3.5 per cent stake or 22.13 crore equity shares, but has it resulted in the best and most efficient outcome for the company? It remains uncertain. Experts are still banking on the long-term prospects of the LIC on account of its high valuation, impressive subscription figures and growing demand for insurance in the post-Covid and post-war era. From a market point of view, the pandemic has laid bare the need for health and life insurance for the people. The insurance industry is likely to see a rise in the immediate future. The LIC is the most prominent contender to fill this potential gap. Earlier, Moody had projected that "as a listed company with external shareholders", the insurance company could "tighten its underwriting standards and improve its risk management and governance, which should contribute to a stronger financial profile". From an investor's point of view, opinions are protracted. As things stand presently, there has been a dearth of international investors, largely. Most of the money was pumped in by small-time investors. In case of timid recovery by the LIC, these investors are bound to face disappointment. However, the contrary view perceives the IPO listing as an opportunity for small-time investors because owing to sinking investors' sentiment and below-par involvement of foreign institutional investors, the small-time investors got ample chance to become shareholders of the company at a discounted price. As and when LIC secures stability in the market, the investors can reap the benefit. The roots of the two contrary views converge at a single point of the analysis — how strongly or weakly the insurance company will perform post-IPO. The prospects and market sentiments by and large appear positive. In fact, hours after its listing, the LIC started showing an upward trajectory — indicating that market sentiments favour it. It must also be noted that a weak IPO listing is not an oddity in the Indian market. It is reported that half of the firms that made their debut since 2010 were trading below their listing price. The LIC has no option from here but to focus on the new opportunities that have come before it. It can now focus on ensuring greater efficiency and transparency in its operations. It also now has a chance to diversify its product portfolio — the lack of which had been a major limiting force for the company. Though the timing of the IPO may appear questionable to some, there could be no looking back from here. Huge opportunities await in the future; they need to be cashed.