The 65-year-old insurer, popularly known as LIC, a household name in the country, last week raised $2.7 billion in the country’s biggest ever initial public offering. After a price tag of Rs 949 ($12.25), at the top end of a marketed range, the stock fell 9.4% to Rs 860 in opening minutes on Tuesday, before crossing losses.
Some investors and analysts are concerned that the price could fall further due to low growth prospects for the older business, the risk of further disinvestment by the government and the absence of key incentives for shareholders.
Jayesh Bhanushali, assistant vice president of research at IIFL Securities Ltd, said the stock is “a good portfolio hedge against volatility”, but if the government decides to further reduce its stake in LIC, the shares will face headwinds in the medium term. may have to. Bhanushali said, “3%-4% regular dividend could be a sweetener that will keep shareholders reeling.”
With demand for a handsome payout, LIC investors are taking a leaf out of Aramco’s playbook when the Saudi Arabian giant in the world’s biggest IPO assured investors a minimum dividend of $75 billion per year until at least 2024 . That partly helped Aramco’s stock climb in early 2019.
Though LIC has not made any such promise in its offer documents, it is not clear how soon the company will succumb to the wishes of investors.
A finance ministry spokesperson declined to comment, while a representative of LIC was not immediately available for comment.
If the stock fails to recover, its poor listing is set to frustrate millions of small investors, who bid enthusiastically for the issue because of their long and emotional association with the insurer and its products. A household name in India, the firm has approximately $500 billion in assets, 250 million policies and makes up about two-thirds of the market. A discount of Rs 60 was offered to the policy holders.
Chokalingam G, a strategist at Equinomics Research and Advisory Pvt Ltd, said, “LIC’s dividend payout needs to be attractive to maintain investor confidence in the stock. The stock has fallen below the price it was allotted to retail investors. And if it falls further, there must be something that attracts investors to hold it.”
LIC’s IPO plans have faced adversity right from the start, with appraisers making different estimates for its valuation. People familiar with the matter said it was considering raising up to 500 billion rupees ($6.5 billion). But a global slowdown in fundraising, the war in Ukraine and rising interest rates prompted the government to reduce the target. Modi’s administration decided to go ahead with the IPO despite the volatility dampening investors’ appetite for equities.
“It’s more a matter of worse timing than anything else,” said Brian Freitas, an Auckland-based analyst at independent research platform SmartKarma.
not feasible
Freitas said the dividend guarantee would make it more attractive to some investors, but it would also require them to hold the stock for some time in this volatile market. “A lot of investors won’t be comfortable,” he said.
Local investors have often dubbed LIC’s offering as India’s “Aramco moment” in reference to the Gulf oil giant’s listing in 2019, which has raised $29.4 billion. Some have called it the “IPO of the Decade”, which is seen as crucial to consolidating and limiting government finances. Budget deficit as spending and subsidies increase during the pandemic.
At the listing ceremony in Mumbai on Tuesday, Tuhin Kanta Pandey, Secretary, Department of Disinvestment in the Ministry of Finance, said that LIC’s headquarters “is only five minutes away from this place and of course it has taken 65 years to list.”
LIC is the fourth-highest deal in a global IPO priced this year at a time when financial centers from New York to London and Hong Kong lack sizable offers. So far this year, there have been no listings in Hong Kong or Europe worth over $1 billion.
Once the prices stabilize, some investors want to hold LIC shares for a longer period as part of their wealth portfolio.
Debkumar Bandyopadhyay, 57, who works as a consultant in Bangalore, said, “Dividends will help. Government companies operate at a slow pace. My investment has also happened because of the value provided by LIC and not that much growth.”
The fall on the first day of trading also prompted some investors to step in and buy.
“As Warren Buffett says, if everyone is selling then go ahead and buy,” said 54-year-old Rajendra Agarwal, who runs an investment firm.
This story has been published without modification in text from a wire agency feed. Only the title has been changed.