Foreign institutional investors have on the entire steered clear of India’s biggest share sale, deeming it too expensive given currency risks and the worldwide market backdrop.
With just hours to go until the tip of the subscription period for the $2.7 billion initial public offering of Life Insurance Corp. of India, foreign institutional funds have put in orders for merely 2% of the shares put aside for all institutional buyers.
While the anchor portion of the IPO drew in sovereign funds from Norway and Singapore, many of the shares went to domestic mutual funds.
“Foreign institutional investors have been pulling out heavily within the secondary market since October. The Fed rate hike and the recent slide within the rupee against the dollar further enhances risks of currency depreciation that may erode their asset price gains in India,” said Vidya Bala, head of research and co-founder at Chennai-based Primeinvestor.in.
“So there’s little reason for them to take part in an IPO, large as it might be.”
Dubbed India’s “Aramco moment” in reference to Gulf oil giant Saudi Arabian Oil Co.’s $29.4 billion listing in 2019 — the world’s largest — the float of LIC has ended up resembling the Aramco IPO not only in scale but in its reliance on domestic investors after foreign buyers deemed the float too expensive.
LIC has been in search of to drum up interest with newspaper advertisements for the reason that start of the yr, in search of to benefit from a retail investment boom in India.
India’s government had cut the fundraising of the IPO by about 60% because the war in Ukraine roiled markets, denting risk appetite, while rising U.S. rates of interest are putting foreign investors off emerging market stocks. It also cut the valuation it’s in search of for the country’s oldest insurer, which can be value 6 trillion rupees ($78 billion) at the highest of the worth range.
Locals Pile In
While foreign investors have shunned the deal, retail buyers have been piling in. Policyholders placed bids for five times the shares reserved for them, while the worker portion received orders for nearly 4 times the quantity available, stock exchange data stock exchange data showed. Retail investors and policyholders receive discounts on the offer price.
Overall, the IPO has received orders for 1.79 times the shares on offer, while a couple of third of the tranche for qualified institutional buyers stays unsold.
The muted international investor interest stands in sharp contrast to a few of last yr’s Indian IPOs. One97 Communications Ltd., which operates digital payments firm Paytm, drew within the likes of BlackRock Inc., Canada Pension Plan Investment Board and Teacher Retirement System of Texas, amongst many others, for its 183 billion rupee share sale last yr. Food delivery platform Zomato Ltd. was similarly popular amongst foreign investors.
Nevertheless those buyers have been left nursing losses as enthusiasm over India’s tech boom waned after some flops. Paytm sank 27% on its debut and is now trading 74% below its offer price. Zomato had a robust debut last summer but has since lost 20% in value.
Investors have also had concerns about LIC’s ability to maintain market share as private insurers like HDFC Life Insurance Co. Ltd. and SBI Life Insurance Co. Ltd. expand. The private sector has been on an aggressive expansion spree throughout the pandemic, growing recent individual policy premiums while LIC struggles.
“Foreign institutional investors generally, have never been big on state-run corporations as it is rather difficult to generate profits off them,” said Abhay Agarwal, fund manager Piper Serica Advisors Ltd. “For LIC too the federal government was unable to convincingly communicate to global investors that the insurer will prioritize the interest of shareholders and won’t function merely as a government entity.”