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4 out of 7 insurance, MF IPOs trade 22% below issue price in aggregate

Investors who subscribed to the shares of companies engaged in insurance and mutual fund businesses through initial public offering (IPO) have lost their money, with four out of seven stocks underperforming the market since their listing. These five companies collectively raised Rs 306 billion through IPOs, which is currently valued 22 per cent lower at Rs 239 billion.

Except for HDFC Standard Life Insurance Company and ICICI Lombard General Insurance Company, the remaining five companies have given lower returns as compared to the benchmark S&P BSE Sensex.

Four stocks – The New India Assurance Company, General Insurance Corporation of India (GIC Re), Reliance Nippon Life Asset Management and SBI Life Insurance Company – are trading below their respective issue price.

ICICI Prudential Life Insurance (ICICI Pru), however, is quoting 21 per cent higher as against its issue price. In comparison, the S&P BSE Sensex has rallied 32 per cent since ICICI Pru listing on September 29, 2016.

Also Read: ICICI Securities Q1 net profit up 13% at Rs 1.34 bn on non-broking business

Analysts attribute the sub-par performance to aggressive pricing in some of these issues and the overall subdued market sentiment, especially in the mid- and small-cap segments since the start of calendar year 2018 (CY18).

“Pricing in some cases was a bit aggressive, leaving very little room for an upside post listing. That apart, most of these IPOs were in the mid-cap category – a segment that has not done well in CY18,” explains G Chokkalingam, founder and managing director at Equinomics Research.

HDFC Standard Life Insurance Company, the largest gainer among the pack, has seen its market value surge 70 per cent against its issue price, as compared to 10 per cent rise in the S&P BSE Sensex since November 11, 2017. ICICI Lombard, which listed on September 27, 2017, is up 19 per cent from its issue price, as against 18 per cent gain in S&P BSE Sensex during this period.

Also Read: ICICI Securities, ICICI Pru Life hit lowest level since listing

IPO of another group company – HDFC Asset Management Company (HDFC AMC) – opened for subscription on Wednesday, with most brokerages suggesting investors should subscribe to the issue.

“At a price band of Rs 1,095 – Rs 1,100 per share, the issue is priced at 31.4x FY18 earnings per share (EPS). It has a healthy RoNW (return on net worth) of 33.4 per cent, which is among the highest in the industry. Premium valuations are justified by healthy RoNW, the AMC’s leadership position, reputed pedigree and structural growth trend given the financialisation of household savings in India,” Sharekhan said in an IPO note.

Despite the underperformance in some cases, analysts suggest investors hold on to these stocks for now.

“The asset management is growing thanks to the financialisation of savings. The prospects look bright. The mid- and small-cap market segment should also gradually recover. I don’t see any reason why investors should book losses in these counters now,” Chokkalingam says.

Jyotivardhan Jaipuria, founder and managing director at Valentis Advisors, agrees and suggests investors can look at insurance and AMC stocks to play the financialisation theme from a medium-to-long term perspective.

“We think there is enough appetite for high-quality companies in India. Overall, we are seeing new sectors like insurance companies and asset management companies getting listed which are increasing the breadth of sectors one can play the financialisation of savings theme,” he says. 

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