Business strategy

Listing Gain for Investors? Know What GMP Suggests

LIC IPO GMP: The premium on shares of Life Insurance Corporation of India (LIC) in the grey market climbed 80 per cent on April 28, with the company’s initial public offering – the largest in the country – set to open next week. LIC shares commanded a premium of Rs 45 over the higher end of the price band set for the IPO, compared with Rs 25 on April 27, according to IPOWatch, which tracks unofficial prices of upcoming IPOs, also known as the grey market prices. Experts expect the grey market premium to inch higher closer to the launch date.

The LIC IPO opens on May 4 and closes on May 9. The price band has been set at Rs 902 to Rs 949, with a discount of Rs 60 for policyholders and Rs 45 for employees. Market observers said that LIC IPO GMP (grey market premium) today is Rs 45, which is up from its grey market premium on Thursday.

As LIC IPO GMP today is Rs 45, it means grey market is expecting that LIC IPO listing would be around Rs 994, around 4 per cent higher from LIC IPO price band of Rs 902 to Rs 949 per equity share.

However, stock market experts said that GMP is not the right criteria to find out whether an IPO would perform better or not. They said that the financials of the company gives concrete information about the fundamentals of the company. They advised investors to look at the balance sheet of LIC instead of following GMP only.

Abhay Doshi, co-founder of UnlistedArena said that initial signs are healthy but the issue is quite large and the company is commanding a decent weight in the unofficial market.

“One should not focus much on the grey market for the LIC IPO as the issue is quite large,” Doshi, the avid grey market tracker added. “Let the issue open and see the investors’ interest in the issue. It’s too early to say anything.”

On whether one should apply for the LIC IPO or not, Santosh Meena, head of research at Swastika Investmart Ltd said, “LIC is the largest insurance provider company in India. During the start of the IPO, the valuation was pegged at Rs. 12 to 13 lakh crores, but due to global economic factors and increased volatility, the government has decided to slash the valuation to about Rs. 6 lakh crores. LIC’s embedded value, which is a measure of the consolidated shareholder’s value in an insurance company, is around Rs 5.4 lakh crores as of September 30, 2021. So, at a valuation of Rs. 6 lakh crores, the issue is priced at a Price to Embedded Value of 1.1, which is a discount compared to its listed Indian as well as global peers.”

“LIC is synonymous with insurance in India and enjoys a huge competitive advantage in terms of brand value and a huge network of agents. However, there are concerns with the company like losing market share to private players, lower profitability & revenue growth compared to private players, lower VNB margins, and short-term persistency ratios, but the valuation at Price to Embedded Value of 1.1 discounts the above concerns. Nevertheless, investors must be aware that the business of insurance is long-term in nature; therefore we recommend this issue for the long term only,” Meena said.

Disclaimer:Disclaimer: The views and investment tips by experts in this News18.com report are their own and not those of the website or its management. Users are advised to check with certified experts before taking any investment decisions.

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