LIC IPO GMP

The Rs.21,008.48 crore IPO of Life Insurance Corporation (LIC) of India consists entirely of an offer for sale of Rs.21,008.48 crore by the government of India. The offer for sale has been priced in the band of Rs.902 to Rs.949 per share and the IPO allotment price will be discovered post the book building process completion. 

The issue opens for subscription on 04th May 2022 and closes for subscription on 09th May 2022. The stock is scheduled to list on 17th May 2022. The GMP trading normally starts about 4-5 days prior to IPO opening and continues till the listing date.

There are 2 factors that impact the GMP. Firstly, the market conditions have a deep impact on the GMP. Secondly, the extent of subscription also has a deep impact on the GMP as it is indicative of investor interest in the stock.

There is one small point to remember here. The GMP is not an official price point, just a popular informal price point. However, in most cases, it has proved to be a good informal gauge of demand and supply for the IPO. Hence it does give a broad idea of how the listing is likely to be and how the post-listing performance would be. 

While the GMP is just an informal approximation, it has been generally seen to be a good mirror of the real story. More than the actual price, it is the GMP trend over time that really gives insights about which direction the wind is blowing.
 

LIC IPO Grey Market Premium

In the above case, the GMP trend shows that the grey market premium had started off in a tepid fashion but has later picked up steam.

Over the last 8 days, the GMP has gone up sharply from Rs.15 per share to the range of Rs.85-90 per share. The first trigger will be the anchor response, which has been very encouraging and that should be positive for the GMP.

Of course, we have to also await for the actual subscription numbers to flow in. But, clearly this shows a gradual build up in the levels of interest in the grey market ahead of the LIC IPO and that is broadly a positive signal.

After all, LIC is one of the strongest and most recognized retail financial brands and that is evident in the growing GMP clout.

If you consider the upper end of the price band of Rs.949 as the indicative discovered price for the LIC IPO, then the likely listing price is being signalled at around Rs.Rs.1,034 (i.e. Rs.949 + Rs.85 GMP per share).

You just need to add the grey market premium (GMP) to the upper end of the price band. One data point to track will be the subscription update on the stock as that would chart the GMP course from here.

The GMP of Rs.85 as on 02nd May 2022 on a likely upper band pricing of Rs.949 indicates a listing premium of a very moderate 8.96% over the listing price. That presupposes a listing price of approximately Rs.1,034 per share, when Life Insurance Corporation (LIC) of India actually lists on 17th May 2022. 

GMP is an important informal indicator of likely listing price, although it tends to be quite dynamic and changes direction with the flow of news. Here, investors must note that this is just an informal indication and has no official sanction.

However, for traders who are in the stock for the short term, the GMP gives a reasonably good indication of the likely listing price and the likely listing returns on the IPO.

The catch is that this grey market price can still keep changing depending on how the subscription pans out once the actual issue opens.

That is why the trend of the GMP is as critical as the quantum of GMP. The stock continues to attract interest in the grey market till the day before it actually lists on the bourses. 

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