SBI Life Insurance Has A Modest Debut. Should You Buy Shares Now?

Mumbai: SBI Life Insurance Co Ltd made just modest gains in its trading debut on Tuesday after its IPO - India's biggest in seven years - raised $1.3 billion at valuations widely viewed as steep.

Although India could notch up a record-setting year for IPOs with almost $6 billion in deals done so far in 2017, concerns about high valuations have started to emerge with the stock market starting to pull back after a string of record highs.

Shares in India's biggest private sector life insurer, majority-owned by State Bank of India, were 3.6 percent higher than their IPO price of Rs 700 on the National Stock Exchange in afternoon trade. At one stage they rose as much as 5.7 percent.

Some debuts earlier this year have been much stronger, with Avenue Supermarts, for example, doubling in price on its first day of trade. SBI Life's gains were, however, in line with ICICI Lombard General Insurance's performance last week when it ended its maiden day of trade 3 percent higher.

SBI Life's IPO, which raised funds for its two main shareholders, saw its valuation jump to Rs 70,000 crore from an estimate Rs 46,000 crore in December when it sold a small stake to investors including KKR & Co and Temasek.

Vrinda Aditya, an analyst at Asit C. Mehta Investment Interrmediates Ltd, said although the debut had not been particularly strong, she believed SBI Life was an attractive stock to hold long-term given rosy prospects for India's insurance industry.

"Overall for the insurance industry, it is growing much faster compared to its global peers, so lots to look forward to. But pricing and valuation will remain key in deciding the fate of upcoming IPOs," she said.

Insurers are expected to benefit from rising income levels in the world's second-most populous nation, where comparatively few people currently take out insurance.

IIFL Investment Managers has estimated India's gross direct premium income, a key metric for insurers, was only 0.77 percent of gross domestic product last year, compared to the global average of 2.81 percent.