Why Foreign Investors Have Mostly Steered Clear Of Mega LIC IPO

Foreign investors mostly avoid India’s biggest, LIC IPO, market risk

Foreign institutional investors have completely shied away from India’s biggest share sale, considering it too expensive given the currency risk and global market backdrop.

With the end of the subscription period for Life Insurance Corporation of India’s $2.7 billion initial public offering, foreign institutional funds have placed orders for only 2% of the shares set aside for all institutional buyers.

While the anchor portion of the IPO attracted sovereign funds from Norway and Singapore, the majority of the shares went to domestic mutual funds.

“Foreign institutional investors have been pulling heavily in the secondary market since October. The Fed rate hike and the recent depreciation of the rupee against the dollar have further increased the risk of currency depreciation which could curtail their asset value gains in India,” said Vidya Bala, head of research and co-op at Chennai-based Primeinvestor.in. – said the founder.

“So there’s no reason for them to participate in an IPO, no matter how big it is.”

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Dubbed India’s “Aramco moment” in reference to the $29.4 billion listing of Gulf oil giant Saudi Arabian Oil Company in 2019 – the world’s largest – LIC’s float not only largely but also in its dependence on the Aramco IPO sees like. After the foreign buyers considered the float too expensive on the domestic investors.

To take advantage of the boom in retail investment in India, LIC has been trying to spur interest in newspaper advertisements since the beginning of the year.

India’s government cut fundraising for the IPO by nearly 60% as the war in Ukraine shook markets, eroding risk appetite, while rising US interest rates kept foreign investors away from emerging market stocks. doing away. It also cut the valuation it sought for the country’s oldest insurer, which would top the price range by 6 trillion rupees ($78 billion).

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Stock exchange data shows that while foreign investors have pulled out of the deal, retail buyers are making deposits. Policyholders bid for five times the shares reserved for them, while employee shares received orders for nearly four times the amount available. Retail investors and policyholders receive a discount on the offer price.

Overall, the IPO has received orders at 1.79 times the shares on offer, while nearly a third of the tranche remains unsold for qualified institutional buyers.

The muted international investor interest is in stark contrast to some of the Indian IPOs in the past year. One97 Communications Ltd., which operates digital payments firm Paytm, attracted BlackRock Inc., Canada Pension Plan Investment Board and Teacher Retirement System of Texas, among many others, for its Rs 183 billion share sale last year. Food delivery platform Zomato Ltd. It was similarly popular among foreign investors.

However those buyers have been left nursing losses as enthusiasm on India’s tech boom has waned after a few flops. Paytm recorded a drop of 27% in its debut and is now trading 74% below its offer price. Zomato had a strong start last summer but has since lost 20% in value.

Investors are also concerned about LIC’s ability to retain market share as private insurers such as HDFC Life Insurance Company Ltd and SBI Life Insurance Company Ltd expand. The private sector has been on an aggressive expansion spree during the pandemic, with new individual policy premiums rising while LIC is struggling.

“Generally, foreign institutional investors do not go big on state-run companies as it is very difficult to make money from them,” said Abhay Agarwal, fund manager, Piper Serica Advisors Ltd. Even for LIC, the government was unable to communicate convincingly. Global investors are of the view that the insurer will prioritize the interests of the shareholders and will not operate as a mere government entity.”

(Except for the title, this story has not been edited by NDTV staff and is published from a syndicated feed.)

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