India: LIC’s looming IPO weighs on India insurer shares, investors say

  • Mar 22’s mammoth stock market debut for India’s Life Insurance Corporation (LIC) has battered shares in other insurers as investors trim their holdings to make room for the state-owned giant, fund managers and analysts said.
  • The flotation, potentially raising USD8bn, likely will continue to drag on LIC’s competitors for about a year and could spread to other sectors, they said.
  • The government filed draft papers on 13 Feb 22 with India’s market regulator to sell 5% of the company’s shares in what could be the world’s third-biggest insurance IPO ever and one of this year’s biggest Asian share sales, according to Refinitiv data.
  • “This is the biggest one and you have to make space for this,” said a fund manager who asked not to be named. “Historically, market leaders are the first ones that list. This is a rare moment when a large player is being listed very late.”
  • “For any fund manager, having a player that owns over 60% of the market share instead of individually owning those that have 10%-11% market share is a very natural aspiration,” said Vidya Bala, co-founder of PrimeInvestor, a stocks and mutual funds research firm.
  • Fund managers have already started reducing their exposure to the three listed private life insurers, the fund manager and Bala said. Shares in ICICI Pru have dropped 10.4% this year, while HDFC Life is down 9.7% and SBI Life 6.2%, compared with a marginal 0.2% decline in the blue-chip Nifty 50 index for the period.
  • LIC’s listing could dump the equivalent of nearly 60% of the three insurers’ free-float capitalisation on the market, Macquarie said in a report this week, adding that the outlook for them remains challenging.
  • If LIC’s valuation is attractive, the pressure could spread beyond insurers, weighing on consumer goods firms and some non-banking financial companies, two fund managers said.
  • “When IPOs of this big size come, they suck out the liquidity from the system,” one of the fund managers said. “If there’s room full of people at a party and a big guy comes in, you have to create space for him.”

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