September 28, 2017 / 2:46 AM / 3 months ago

BREAKINGVIEWS-Charmed life for Indian IPOs may be short

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

By Una Galani

MUMBAI, Sept 28 (Reuters Breakingviews) - India’s bumper new listings are riding two big trends. Huge domestic inflows and a shortage of healthy financial stocks have helped general insurer ICICI Lombard and SBI Life Insurance close the books on their initial public offerings, the two biggest in at least five years, at punchy valuations this week. But other issuers that want to milk the market will need to move fast.

With the country’s stock market near a record high, this is already the best year for IPOs since 2010. With $6.8 billion of deals so far, the full year could set a record. Insurers have led these share sales, and at eye-watering valuations. ICICI Lombard and SBI Life Insurance have sold shares at 7 and 11 times their book value for 2018, says Sumeet Singh of research platform Smartkarma.

That is frothy notwithstanding the low take-up of insurance, which leaves lots of room for growth. The only other listed player, ICICI Prudential, trades on 7.3 times, while Hong Kong-listed AIA trades on barely 2 times. It is not just insurers listing at high multiples; a small snack-food firm just sold shares at over 200 times earnings for the last financial year.

Two things support this feverish demand. Domestic funds are on a buying spree, driven by Prime Minister Narendra Modi’s crackdown on illicit cash, which has made it harder to invest in hard assets like real estate and gold. Morgan Stanley enthuses India is “in the midst of a domestic liquidity supercycle”, noting equity mutual fund inflows in August more than tripled compared to a year ago. Strong financial stocks in India are also in short supply. Investors see little value in India’s capital-hungry state banks. That gives insurers an added scarcity premium.

Yet the ground is beginning to look shaky for others lined up to list, including HDFC Life and Reliance General Insurance. While demand from institutions is strong, individual investors showed signs of restraint in the ICICI Lombard and SBI Life offerings, IFR, a Thomson Reuters publication, reported. Meanwhile, foreigners are selling, amid concerns that the economy may enter a prolonged rough patch. This charmed life for Indian IPOs may be short.

On Twitter twitter.com/ugalani

CONTEXT NEWS

- Shares of Indian insurer ICICI Lombard rose slightly on Sept. 27, their first day of trading in Mumbai.

- The stock, which was sold in a 57 billion rupee ($870 million) initial public offering, closed at 681.2 rupees. That compared to a top-of-the-range issue price of 661 rupees.

- Separately, SBI Life Insurance this week priced its 84 billion rupee offering at the top of the range. The shares are due to start trading on Oct. 3.

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Editing by Quentin Webb and Katrina Hamlin

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