Gray Market Hints at Tepid Trading Debut for Biggest India IPO

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(Bloomberg) — Life Insurance Corp. of India’s $2.7 billion initial public offering, the biggest ever from the South Asian nation, may see a lackluster trading debut next week, according to indications from the so-called gray market.

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Shares of LIC are trading at a discount of about 15 rupees to 949 rupees ($12.28), the top end of the marketed range, in the gray market on Wednesday, traders told Bloomberg News. This compares with a premium of as much as 85 rupees at the start of the month. In the unregulated market, investors bet on the price at which the shares of a company will debut on bourses to profit from any sizable jump.

The trading debut of the insurer will be a touchstone for the depth of the country’s equities market, which has so far resisted any sharp plunge despite a record exodus of foreign funds. Surging oil, the war in Ukraine and shrinking liquidity in the global banking system are making a dent on already fragile sentiment.

“Sentiments are flat for LIC’s listing in the gray market,” said Darshan Manek, a Mumbai-based investor who trades in IPO-bound shares. “This means listing will be at a discount.”

Investors are also concerned about LIC’s ability to keep market share as private insurers like HDFC Life Insurance Co. and SBI Life Insurance Co. expand. The private sector has been on an aggressive expansion spree during the pandemic, growing new individual policy premiums while LIC struggled.

Traders said Reserve Bank of India’s surprise rate hike on May 4, which came before the Fed’s action, also spooked the investors as prior to the monetary tightening decision,

The insurer’s IPO had received orders for nearly three times the shares offered. Retail buyers and policy holders have piled bids since the issue opened for subscription last week, while high networth individuals and foreigners balked.

The biggest IPO debut from India so far, Paytm, sank 27% on its first trading day last year and is now trading 75% below its offer price.

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