LIC IPO: Why aren’t well-informed investors in a hurry to invest their money?

India’s Life Insurance Corporation (LIC) policyholders rushed to invest on day one of the life insurance giant’s initial public offering (IPO), leading to an oversubscription of their quota.

However, it took three days for retail investor quota to be oversubscribed, even after the primary market hours were extended from 10 a.m. to 7 p.m. daily until issuance remained open.

By 6:30 p.m. on day 3 of the LIC IPO, policyholders had subscribed more than 3.9 times, employees about 3 times, and retail investors about 1.2 times, while non-institutional investors ( NII) had only subscribed about 71% of their quota and qualified. institutional investors (QIB) subscribed to only 55% of the shares offered to them.

While a rebate of Rs 60 per share for policyholders and Rs 45 each for Indian employees and LIC retail investors would have motivated these investors, the lack of interest from wholesale investors is cause for concern.

Basically, it is the ultra-conservative people who make up the majority of LIC policyholders, especially those who take out endowment policies – the mainstay of India’s LIC. Similarly, the majority of the Company’s employees would never have invested in market-related instruments and would only have opened accounts to invest in LIC’s IPO.

Thus, it was mostly amateur investors who rushed to invest in the IPO, while experienced retail investors – even after getting a discount – took a slow approach. Many institutional investors are still sitting on the fence and have yet to participate.

So what is making experienced investors late to invest in LIC’s IPO?

“Depending on the situation, it is better to invest in many stocks through the secondary markets, rather than through the IPO route,” said Debashis Majumder, a seasoned Kolkata-based investor.

In the event of an IPO of LIC, Majumder highlights some of the factors that slowed it down:

Increase in key rates

Markets fall after the Reserve Bank of India (RBI) decided to raise the repo rate and cash reserve ratio (CRR) to control the high rate of inflation. Markets are reacting negatively, as higher rates would mop up excess liquidity in the money market and make borrowing more expensive for businesses.

Besides the RBI, the US Federal Reserve also raised its benchmark policy rates for the second time in successive meetings. As a result, global markets are also collapsing.

As the markets are expected to fall further, it is better to wait and watch, rather than rush to invest in the IPO, even though a rebate of Rs 45 per share is available on investments up to Rs 2 lakh.

Russia–Ukraine War

There is speculation that Russia may declare a full-fledged war against Ukraine to make Victory Day, which is celebrated in Russia on May 9 every year, memorable.

If this happens on the closing day of LIC’s IPO (May 9, 2022), there is a high chance of a stock market crash and subsequent India’s LIC listing on secondary markets at a much lower value, compared to the discounts offered to policyholders, employees and savers.

So, seasoned investors like Majumder think it’s best to sit on the fence and wait for a better opportunity to invest in the secondary markets.