LIC's looming IPO weighs on insurer shares, investors say

The government filed draft papers on Sunday with India's market regulator to sell 5% of the company's shares

Next month's mammoth stock market debut for India's Life Insurance Corporation (LIC) has battered shares in other insurers as investors trim their holdings to make room for the state-owned giant, fund managers and analysts said.

The flotation, potentially raising $8 billion (mores than Rs 6,000 crore), likely will continue to drag on LIC's competitors for about a year and could spread to other sectors, they said.

The government filed draft papers on Sunday with India's market regulator to sell 5 per cent of the company's shares in what could be the world's third-biggest insurance IPO ever and one of this year's biggest Asian share sales, according to Refinitiv data.

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"This is the biggest one and you have to make space for this," said a fund manager who asked not to be named. "Historically, market leaders are the first ones that list. This is a rare moment when a large player is being listed very late."

The 66-year-old company, dominating India's insurance industry with more than 28 crore policies, is the fifth-biggest global insurer in terms of insurance premium collection in 2020, the latest year for which statistics are available. It had Rs 39.56 trillion ($527 billion) of assets under management as of September.

"For any fund manager, having a player that owns over 60 per cent of the market share instead of individually owning those that have 10 per cent-11 per cent market share is a very natural aspiration," said Vidya Bala, co-founder of PrimeInvestor, a stocks and mutual funds research firm.

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Fund managers have already started reducing their exposure to the three listed private life insurers, the fund manager and Bala said.

Shares in ICICI Pru have dropped 10.4 per cent this year, while HDFC Life is down 9.7 per cent and SBI Life 6.2 per cent, compared with a marginal 0.2 per cent decline in the blue-chip Nifty 50 index for the period.

LIC's listing could dump the equivalent of nearly 60 per cent of the three insurers' free-float capitalisation on the market, Macquarie said in a report this week, adding that the outlook for them remains challenging.

If LIC's valuation is attractive, the pressure could spread beyond insurers, weighing on consumer goods firms and some non-banking financial companies, two fund managers said.

"When IPOs of this big size come, they suck out the liquidity from the system," one of the fund managers said. "If there's room full of people at a party and a big guy comes in, you have to create space for him."

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