Do jumbo IPOs create wealth? Here is what historical numbers have to say

The country’s biggest institutional investor Life Insurance Corporation of India (LIC) launched the largest-ever initial public offering (IPO) on Wednesday to raise Rs 21,000 crore from investors. The public offer has received a ‘Subscribe’ rating from the majority of analysts, citing attractive valuations. The issue got subscribed more than 15 per cent on the first day of the offer till 11.15 am (IST). 

 

The insurance behemoth has fixed a price band of Rs 902-949 for the public issue, which will close on May 9. At the upper price band, the insurer will have an estimated market capitalisation of Rs 6 lakh crore. LIC has offered a special discount of Rs 45 per share to retail investors and employees of LIC. Moreover, there is a discount of Rs 60 for policyholders. Meanwhile, the public offer got subscribed by more than 30 per cent on the first day of offering till 12.30 pm (IST). On the other hand, the grey market premium of LIC declined to Rs 65 on May 4 from Rs 85 on May 4, according to IPO watch. 

 

Commenting on LIC IPO, KR Choksey Shares and Securities said, “Given the growth prospects for the pension and annuity segment and the company’s position as the market leader in the insurance sector, the company’s valuation will be at par with its private peers. Investors can subscribe to the IPO for listing as well as long term gains.” 

 

However, historical data suggest at least six biggest ever IPOs before LIC have eroded up to 95 per cent of investors. Take this: shares of Paytm, which raised Rs 18,300 crore from the primary market, have plunged 72 per cent to Rs 597 against the issue price of Rs 2,150. The company made its debut at a discount of 9 per cent at Rs 1,955 on November 18, 2021. 

 

It was followed by Coal India, which garnered over Rs 15,000 crore from the public issue. After making a robust debut on bourses in November 2010, shares of coal major have declined over 23 per cent to Rs 188.50 against the issue price of Rs 245. The scrip was listed at a premium of 17.44 per cent on November 4, 2010. 

 

Reliance Power, which raised Rs 11,563 crore from IPO, is the biggest wealth destroyer and is next on the list. Shares of the company have tanked more than 95 per cent to date against their issue price. The scrip made its debut on bourses at a premium of 15 per cent in February 2008. 

 

General Insurance Corporation of India (Rs 11,372 crore), SBI Cards (Rs 10,354 crore), New India Assurance Company (Rs 9,600 crore) and Zomato (Rs 9375 crore) are the other biggest IPO which Dalal Street have witnessed so far. 

 

Shares of General Insurance Corporation of India and The New India Assurance Company traded more than 85 per cent down against their respective issue price. Food delivery firm Zomato also declined more than 8 per cent to Rs 69.45 against its issue price of Rs 76. On the other hand, SBI Cards and Payment Services traded 8.64 per cent higher at Rs 820.20 against the issue price of Rs 755. 

 

Coming back to LIC IPO, Hem Securities said, “LIC being fifth-largest life insurer globally by GWP and the largest player in the fast-growing and underpenetrated Indian life insurance sector is a trusted brand and a customer-centric business model. It has a presence across India through an omnichannel distribution network with an unparalleled agency force. The company being the largest asset manager in India with an established track record of financial performance and profitable growth looks decent investment avenue. Hence we recommend “Subscribe” on the issue.” 

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