LIC’S mega share sale subscribed 67% on first day

With ~28,960-crore projected mop-up, month to be second-best for fund-raising

Life Insurance Corporation of India’s (LIC’S) initial public offering (IPO), which opened for subscription on Wednesday, was subscribed 67 per cent, or 0.67 times, at the end of Day 1, driven by robust interest from its policyholders, employees, and the retail segment. The issue will remain open till May 9.

The policyholders’ segment was subscribed close to two times, the employees’ segment 1.17 times, and the retail segment 0.6 times. The non-institutional investors and qualified institutional buyers’ segments were subscribed 0.27 times and 0.33 times, respectively, on the first day.

The offer received bids for 108.6 million shares against the offered 162.7 million shares. The retail category and LIC employees were given a discount of ~45, while LIC policyholders were given a discount of ~60 per share. The issue has a price band of ~902-949.

Interestingly, LIC’S IPO will remain open for subscription even on the weekend, given the large amount the government is looking to raise from the market.the insurance behemoth on Monday raised ~5,627 crore from anchor investors ahead of its IPO, with 71 per cent of the amount coming from domestic mutual funds (MFS). In total, the state-owned insurance giant allotted nearly 59.3 million shares to 123 investors at ~949 apiece, with 42.17 million shares allotted to 15 domestic mutual funds through 99 schemes.

SBI Mutual Fund subscribed to shares worth over ~1,000 crore via four different schemes. ICICI Prudential MF subscribed to shares worth over ~700 crore through over half a dozen schemes, and HDFC MF subscribed to shares worth over ~650 crore of the insurer via 10 different schemes. Aditya Birla Sun Life MF and Axis MF were other major subscribers among domestic fund houses.

At least half a dozen companies, besides Life Insurance Corporation (LIC) of India, are looking to raise ~7,960 crore through their initial public offerings (IPOS) this month.

The ~21,000-crore IPO of LIC opened on Wednesday.

Total funds raised could reach ~28,960 crore, making May the best month for IPO fund-raising after November 2021.

In November 2021, nine companies had raised ~35,664 crore through IPOS.

The ~5,235-crore IPO of Delhivery, an integrated logistics company, will open on May 11. The offering comprises a ~4,000-crore fresh issuance; the rest is an offer for sale.

Venus Pipes and Tubes, Ethos, Hexagon Nutrition, emudhra, and Aether Industries are others waiting in queue.

The IPOS are coming when equity markets are volatile largely due to the hawkish stance of central banks the world over, an inexorable war in Ukraine, and fears around economic growth.

Rising inflation has forced major central banks, including the US Federal Reserve (Fed), to prioritise fighting price puffiness. The statements by Fed officials in April hinted at an aggressive reduction of its balance sheet and a 50-basis point (bps) hike.

Fed Chair Jerome Powell said “one or more” 50-bps hikes could be appropriate to tame the hottest inflation in four decades.

The war between Russia and Ukraine continues to weigh on sentiment.

Rising crude oil prices have increased India’s import bill.

Moreover, India’s Economic Survey predicted an 8-8.5 per cent gross domestic product growth rate in 202223. But, crude oil remaining in the range of $70-75 per barrel was one of the main assumptions, based on which these projections were made. The Ukraine offensive has pushed crude prices to above $100.

Negative global cues have led to foreign portfolio investors (FPI) selling Indian equities worth ~1.3 trillion in 2022. Foreign investor participation plays a crucial role in keeping the IPO market robust.

The benchmark Sensex gained 22 per cent in 2021. The gains in the secondary market helped 63 companies to raise ~1.18 trillion through IPOS. Bankers said there is enough liquidity in the market to absorb all IPOS, volatility and the launch of LIC’S mega issue notwithstanding.

“In the past six months, retail and domestic institutional investors have absorbed the impact of FPI selling. We are coming of age. There will be a temporary crunch because LIC will suck out some liquidity. Soon enough, there will be windows for new IPOS to come up,” said Rajendra Naik, managing director, Centrum Capital.

However, bankers said issuers will have to make reasonable compromises regarding valuations, if heightened volatility persists.

“Valuation adjustments are now a reality. Promoters will have to temper their expectations based on market scenario,” said Naik.

Lofty valuations, especially for lossmaking unicorns, had been pilloried after Paytm’s listing debacle last year.

“Calendar year 2022 is unlikely to see the same level of primary market issuances as in 2021. While there is a robust pipeline of companies that have received or are awaiting Securities and Exchange Board of India’s approval, the secondary market is still volatile. We have seen a few good issues of late. Prospective issuers will take confidence from that,” said Pranav Haldea, managing director, PRIME Database.