Shares of the state-owned Life Insurance Corporation (LIC) were clobbered on listing on Tuesday.
The blow left an army of newbie investors from the country’s small towns and cities, who had been persuaded to park their investible surplus in the country’s largest initial public offering (IPO), wringing their hands in dismay.
The stock closed almost 8 per cent lower than the issue price of Rs 949. It closed at Rs 875.25 on the National Stock Exchange and at Rs 875.45 on the Bombay Stock Exchange.
LIC policyholders and retail investors had bought the shares at a discounted price of Rs 889 and Rs 904 apiece, respectively.
The walloping had been anticipated: the alarm bells had started to ring on the grey market where the stock hovered at a pre-listing discount between Rs 60 and Rs 80.
At the close of Tuesday’s frenetic day of trading, LIC’s market capitalisation stood at Rs 5,53,721.92 crore, making it the fifth most valuable company.
But the disastrous debut meant that investors lost over Rs 46,000 crore at the end of the first day.
The government faces a massive rap for deluding investors into believing that it had left some gains on the table by pricing the stock at Rs 949 — a comment that drew merciless criticism from the Opposition which must also share a part of the blame for stoking demand for the stock by accusing the Modi government of selling the family jewel “for a song”.
The insurer’s policyholders and retail investors had a small window of opportunity to make some profits when the share hit a day’s high of Rs 920 on the BSE and Rs 918.95 on the NSE. However, it could not hold on to those levels and sank below the allotment price.
What investors found particularly galling was the fact that the LIC stock tumbled on a day when the bellwether indices rallied sharply with the Sensex closing the day with a gain of 1344.63 points, or 2.54 per cent, at 54,318.47.
“We were not expecting a big listing as the markets were jittery, (but we) expect it to pick up,” LIC’s chairman M.R. Kumar told reporters.
“Markets are in a very bad shape; we know that and it’s going to continue to be like that for some time,” Kumar said in an interview with digital news platform BQ Prime. “Maybe, we are not looking at Rs 1,000-1,200 (per share) but we are still looking at a range above what the policyholders have put in.”
Disinvestment secretary Tuhin Kanta Pandey tried to soothe angry investors by blaming the fiasco on unpredictable market conditions arising from a number of exogenous factors including the Russia-Ukraine war and urged them to hold on to the stock to realise long-term value.
The government had been repeatedly advised to delay the IPO because of the volatile markets but it still chose to press ahead in the hope that investors would flock to the issue. That view seemed to be vindicated when the issue was oversubscribed 2.95 times.
Several brokerages have already picked up Pandey’s refrain that the stock will yield long-term value.
“Investors should not look to exit at current levels and (must) hold the stock from a medium to long-term perspective. We believe LIC continues to be a solid bet in the long run as it is a play on the growth story of the under-penetrated life insurance industry,” said B. Gopkumar, MD and CEO, Axis Securities.
LIC is the latest in a string of Indian companies that tumbled on listing amid an intense debate over high valuations that were not warranted by current performance.
Over the past year, retail investors have badly burnt their fingers by placing their bets on first-time issuers. Fintech firm Paytm’s parent — One97 Communications — plunged on its debut last November following its $2 billion IPO, which was the country’s largest till the LIC issue came along.
The Paytm stock closed at Rs 586.30 on Tuesday, a 72.7 per cent decline from its issue price of Rs 2,150.
Other big listings such as food delivery firm Zomato Ltd and cosmetics retailer Nykaa are also trading at large discounts to their IPO prices.
