LIC IPO: What to Expect at Listing amid Falling Market, Shrinking GMP

India’s insurance behemoth, the Life Insurance Corporation of India (LIC), is set to make its stock market debut on May 17.

The Rs 21,000-crore LIC IPO, the biggest so far in the Indian markets, renewed the interest of retail investors in the primary markets. The public issue witnessed a strong subscription despite the current headwinds.

LIC IPO comes at a time when the global markets are roiled by geopolitical crises in Europe coupled with weak macroeconomic factors and monetary policy tightening by global central banks.

LIC’s IPO was subscribed 2.95 times during May 4- 9. The state-run life insurer had fixed the price band for the issue at Rs 902-949 per equity.

However, early indications based on the grey market suggest that LIC’s listing would be anything else but a blockbuster. The grey market data suggests that the LIC’s listing would be tepid as in the past few days, its shares were available at a discount in the grey market.

LIC’s grey market premium (GMP) has been declining recently. This could mean that investors who have been allotted LIC IPO shares may face a slight loss at the time of listing of shares. 

According to market observers, LIC shares are available at a discount of Rs 26 in the grey market on May 12. Its GMP has fallen to minus Rs 26, which is Rs 18 lower than the GMP of minus Rs 8 as of May 11. LIC IPO GMP remained in the negative territory for the second consecutive day.

Before the opening of the LIC IPO, its grey market premium was over Rs 90 per share. However, within a week, the GMP slipped into the negative zone.

The latest GMP figures suggest that the shares of LIC could list at around Rs 923 (Rs 949 – Rs 26). This would be around 2.7% lower than the upper end of the price band of Rs 949 per share.

Weakness in the secondary market is expected to weigh on the recent IPO listings. The global equity markets continue to be under immense pressure due to several factors, including the geopolitical tensions, interest rate hikes, COVID-19 lockdowns in China, and the global economy falling into recession due to high commodity prices and slower growth. Also, the uncertainty related to the Russia-Ukraine war continues to hold investors on the edge. 

The US Federal Reserve’s hawkish statement has already sent equities into a free fall. The global central banks are already suffering from rising inflation and slowing growth. Surging inflation across the world has led the central banks to tighten their monetary policies and hike interest rates. The era of easy and cheap money seems to have come to an end.

On the domestic front, foreign investors are on a selling spree amid rising interest rates. Meanwhile, there are also concerns over lower economic growth. All these factors together have led to a sharp correction in risky assets globally.

What is Grey Market?

A grey market is a parallel market where trading in shares occurs unofficially before they are officially launched for trading on the stock exchange. There are no rules or regulations as this is an unofficial market and even the market regulator Securities & Exchange Board of India (SEBI) does not endorse this.

Many investors observe grey market premium to get an idea of the listing price. However, the grey market is not an ideal indicator of the true value of IPO shares or the success or failure of an IPO.