LIC's grey market premium fizzles out, trades at discount in the unlisted market

The grey market premium of insurer Life Insurance Corporation of India (LIC) came in to negative on Wednesday despite receiving an overwhelming response from investors in the primary market. Shares of the insurance behemoth are likely to list on bourses on May 17.

The initial public offer (IPO) of the insurer was subscribed nearly 3 times on the final day of the offer on May 9, led by the robust response from policyholders, employees and retail investors. The company had fixed a price band of Rs 902-949 per share. However, it offered a special discount of Rs 45 per share to retail investors and employees of LIC. Moreover, there was a discount of Rs 60 for policyholders.

According to a market watcher, LIC is hovering at a discount of Rs 20 in the grey market. Earlier, the GMP of the insurance behemoth was hovering around Rs 90 on April 30. Grey market premium is a premium amount at which grey market IPO shares are traded before they get listed on the stock exchange.

Abhay Doshi, founder, UnlistedArena.com said that LIC IPO shares are available at a discount of Rs 20 in the grey market. “The IPO pricing was kept at reasonable valuations. However, the dicey market conditions troubled the investors. Bulky sized IPO, volatility in the broader market, and interest rates hike have been mood spoilers for the primary market. Had the market conditions remained stable, we would have witnessed a decent response to the IPO of financial behemoth,” Doshi said.

The majority of brokerages gave a ‘Subscribe’ rating to the issue for listings as well as long terms gains. KR Choksey Shares and Securities said, “LIC 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.”

Likewise, Anand Rathi Share and Stock Brokers said, “At the upper price levels, LIC’s embedded value with a market cap of Rs 6,00,200 crore is quite lower when compared with the three listed peers like HDFC Life Insurance, SBI Life Insurance and ICICI Prudential Life Insurance where the average embedded value stood at Rs 3,10,500 crore and the average market capitalisation-to-embedded value ratio arrived at 3.4 times. Hence, the issue looks quite attractive to investors.”