LIC IPO: The lukewarm response from foreign investors turn grey market premium in negative

Even though LIC IPO has oversubscribed nearly 3 times, uncertainty about the listing gain is looming large now. It has turned negative in the grey market as investors are now concerned about volatility, which was triggered by tightening norms by the global central banks due to higher inflation.

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The initial excitement towards LIC IPO has vaporized. Ahead of the listing scheduled for May 17, 2022, the grey market premium (GMP) of Life Insurance Corp. (LIC) shares turned negative on Wednesday, seeding a sense of fear and disappointment among those investors who have applied for LIC IPO in anticipation of huge listing gain.

An unnamed trader said that the LIC GMP was Rs 93-95 per share at its peak. Then it began tumbling down. On May 5, it was trading at Rs 8 to Rs 10 per share. He said it was volatile and had a downward trend between May 6-10. Now, from Rs 8-9 a share, it has fallen down to negative Rs 15 per share on Wednesday.

Because of lackluster responses from foreign investors, the GMP has been steadily falling from its peak. The LIC IPO was mainly subscribed by domestic institutional buyers and retail investors. Participation from foreign investors was limited though.

investors were also concerned about volatility, which was triggered by concerns about tightening norms by the global central banks due to higher inflation.

Although the valuation is lower than peers, it is still positive. However, analysts are concerned by losses of Rs 6,028 crore, declining market share, weak online presence, and the perception that not all decisions made by the largest life insurance company in the country are in line with shareholder interests.

The government will raise Rs 20,500 crore through the sale of 3.5 percent of its stake in India’s largest insurance company. The share sale was opened on May 4 and closed on May 9. Allotments will take place on May 12, and shares will be credited on May 16 to Demat accounts.

LIC has floated its IPO at the price range of Rs 902-949 per share, but it has reduced its issue size by 60% because of poor market conditions.

The IPO was a pure offering for the sale of 221.37 million shares. The firm reserved 59.29 million shares for the anchor investor portion. 22.14 million shares are reserved for existing policyholders while 1.58 million shares are set aside for employees. QIB is at 98.83 million.

LIC IPO was oversubscribed nearly 3 times.

“The IPO was priced quite reasonably. However, volatile market sentiments disturbed the mood of investors. We would have seen much higher subscription across all investor categories, if market sentiments remained stable,” said Manan Doshi co-founder, UnlistedArena.com

Manan’s concerns are quite justified; The volatile environment in the market, the low subscription, and the large issue size are all factors that lead to a lot of speculation, skepticism, and fear of uncertainty despite the offer being attractive.

LIC is not the only stock failing to impress the grey market. The GMP of Delhivery Ltd traded at Rs 8-9 apiece, Venus Pipes & Tubes Ltd was Rs 40-42 apiece, and Prudent Corp Advisory services Ltd Rs 34-36 apiece.

May 17, 2022, is going to be decisive as a lot more depends on the listing performance of LIC stock during the early days. Any setback will almost kill all future prospects of upcoming IPOs.

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