MUMBAI - HDFC Standard Life Insurance Co's shares soared by more than a fifth in their trading debut on Friday after a $1.3 billion initial public offering, bucking a trend of tepid market debuts by Indian insurers due to worries over their valuations.
By 0840 GMT, HDFC Life shares were trading at 352.0 rupees ($5.40), below an earlier high of 369 rupees and compared to the IPO price of 290 rupees. The gains marked the best opening day performance in seven years by a billion dollar-plus India IPO.
Institutional investors seemed to have overlooked a richer valuation for HDFC Life compared to its peers to buy into one of India's top-three private sector life insurers and the most-profitable in the segment.
The gains were aided by an upgrade of India's sovereign bond rating on Friday by Moody's, which lifted the main Mumbai market index up 1 percent.
"The appetite for the IPO despite the valuations...was strong at the issue stage especially from the institutional segment," said Deven Choksey, managing director at K.R. Choksey Shares & Securities.
The institutional part of the HDFC Life sale was oversubscribed more than 16 times, while the portion reserved for retail shareholders was not fully covered, reflecting the concerns over high valuations.
HDFC Life was priced at 4.7 times its 2017/18 embedded value versus SBI Life's 3.9 times and ICICI Prudential's 3.4 times, according to a pre-IPO note from brokerage Centrum.
Choksey of K.R. Choksey said those institutional investors who could not get shares from the IPO were likely buying the shares from the secondary market, adding that long-term investors could continue their purchases.
RECORD IPO YEAR
Insurers are set to benefit from relatively low insurance penetration rates in a country of 1.3 billion people and as more people shift to financial assets from savings in physical assets.
India has seen a record year for IPOs with initial share sales topping $11 billion so far in 2017. HDFC Life's IPO was the fourth billion-dollar plus IPO this year.
HDFC Life's two main shareholders - Housing Development Finance Corp and Standard Life - sold a combined 15 percent stake in the insurer's IPO which was subscribed nearly five times overall.
The gains in HDFC Life shares were partly helped by the Moody's upgrade of India's sovereign bond ratings, while traders covering short positions also helped accentuate the rise, said Arun Kejriwal, founder of Kejriwal Research and Information Services.
Most other recent insurer listings, which were the main driver for the record IPO sales this year, have been weak.
State-run General Insurance Corp, which listed on Oct. 25 after a $1.7 billion IPO that was the biggest this year, is trading 11.6 percent lower. And New India Assurance Co, the biggest non-life insurer and whose IPO raised $1.5 billion, fell around 9 percent this week.
HDFC Life's rival SBI Life has also shed 6.4 percent since its listing last month after a $1.3 billion IPO.
"The over-valuation concerns remain," said Kejriwal of Kejriwal Research, referring to insurance listings.