Investors’ dream turns sour as LIC shares crash on market debut

The listing of LIC was a flop show says V Sanjeev Rao, a stock broker (Photo: MIG)

The highly awaited listing of India’s largest insurance firm and public sector financial services giant Life Insurance Corporation of India (LIC) disappoints as largest IPO in Indian history debuts with 8.62 pc crash. After touching a high of INR 920 within moments of opening, the share touched a low of INR 860.10 and since then has been hovering below INR 890 levels, a stiff drop of nearly 7 pc.

The poor opening had been not been totally unsurprising for many as the grey market, or the informal trading market, had already predicted that LIC shares would trade at a discount of INR 15-20 apiece over their issue price, say stock brokers who regularly deal in these matters.

Some stock brokers as well as investors were quick to bail out on the share and are unequivocal in their assessment of the poor opening. “The listing of LIC shares was a flop show. The retail investors now have to wait and the policy holders also couldn’t see a great show as well so they too will have to wait.  A giant organisation like LIC could have handled or timed the IPO better as this was one of the biggest IPOs of the Indian history.  It is a huge disappointment to the investors and this leads to shaking of investors’ confidence,” V Sanjeev Rao, a stock broker, tells Media India Group.

“My expectations were much higher as LIC is a big brand and a month earlier the grey market had predicted listing rates of around INR 1900 for LIC shares. As soon trading began today, I sold my shares,” Yash Gorashia, a banker who is also a habitual investor, tells Media India Group.

Being the largest ever stock offering on Indian bourses, the IPO had created quite a buzz for months before it opened. While most analysts were critical of the government selling shares in one of the most profitable and gigantic public sector firms, there was some excitement amongst the investors who saw a golden opportunity in the share offering and lined up to buy the share, even though the performance of several other much-vaunted companies especially Unicorns has been extremely disappointing. Notable amongst these are Paytm, the largest private player in digital payments, whose share collapsed 45 pc below the offer price.

Many other high profile listings have met with the same fate on the Indian bourses, which have also fallen dramatically in the past few months, with foreign investors fleeing in hordes, having sold assets worth INR 16.5 trillion in the last seven months. The sell-off has continued in May with another INR 252 billion sold in the first 15 days of the month.

Despite the turbulent markets and the past record of other IPOs, retail investors did plug for the LIC IPO that was over subscribed 2.95 times leading to a giant. It fetched the government, which was the sole shareholder till the IPO, INR 205.57 billion for sale of 221.3 million shares or a 3.5 pc stake.

The price of shares was discounted for employees of LIC and retail investors by INR 45 and a discount of INR 60 per share was offered to the 290 million policyholders.

“Bringing this IPO has brought in a lot of new investors to the stock markets and especially people from across all kinds of investor profile—ranging from the millennials to senior citizens and even NRIs and it has created a lot of awareness as an investment avenue. So, a beginning for new investors but difficulties faced towards the mode of payment was equally a challenge still for a large number of investors,” says Rao.

“LIC is definitely a good Company to be added to an existing stock portfolio for the long-term as LIC is one of the backbones of our nation so the investment would be safe and can yield good dividends,” adds Rao.

“As we already knew that foreign investors were pulling their money out from the country, many investors were aware that listing will come with discounted rates. Many who have purchased the LIC shares are its policy holders and they trust LIC, so they will keep it for long run and will defiantly get good returns,” adds Sanjeev Gokel, an LIC insurance advisor.

Yet, not everyone was swayed by the buzz and many investors stayed away from the offering. “LIC is a public company and it has been manipulated by the government to buy the shares and other financial assets as per government’s priorities rather than economic or business sense in the decision. So, many investors didn’t buy because it’s dubious and even on the basis of a long-term investment, the returns for small investors will be restricted to only 5-10 pc,” says Shashi, a retail investor.

“Most of the new investors are mainly for short-term trading as they want to prop up their income in the market and only those who are policyholders are looking for long-term investment as they already have a long time stake in LIC,” adds Shashi.