GIC RE issue to propel retail investors and help market momentum

The week gone by had four trading days and markets gained on three of them. A serious effort to regain lost ground and touch the previous highs. If that happens around Diwali and the ensuing result season does not give pleasant surprises one wonders whether Diwali 2010 would be repeated? Coal India listed at that time and markets peaked. The BSESENSEX clocked gains of 530.50 points or 1.67% to close at 31,814.22 points while NIFTY gained 191.10 points or 1.91% to close at 9,979.70 points.

Dow Jones hit yet another record lifetime high and closed at 22,773.67 points, gaining 368.58 points or 1.62% in the process.

Markets seem to be on a massive fund-raising exercise currently. There are back to back issues and last week was no exception. Last week saw two issues listing with SBI Life Insurance listing on Tuesday the 3rd October. The share closed with gains on that day but by weekend the share was trading with losses of about 3/4th of a percent. Shares were issued at Rs 700 and the company had raised through an offer for sale Rs 8,400 crs.

The second company to list was Indore based snack maker Prataap Snacks which makes potato chips, extruded products and Indian namkeen under the brand Yellow Diamond. Shares were issued at rs 938 and gained 25% on debut day and 36% by the end of the week.

The issue from Godrej Agrovet Limited opened and closed for subscription during the week and was subscribed an overall 95 times. The issue comprised of a fresh issue ad offer for sale in a a price band of Rs 450-460.

The mother of all issues from General Insurance Corporation of India Limited opens on Wednesday the 11th of October and closes on Friday the 13th of October. There would be no anchor as is the practice of the Government of India. The issue consists of a fresh issue of 1.72 cr shares and an offer for sale of 10.75 cr shares in a price band of Rs 855-912. The issue would garner between Rs 10,661.85 crs at the lower price band to Rs 11,372.64 crs at the top end of the band. There is a discount of Rs 45 per share for retail investors and eligible employees.

GIC RE is in the business of reinsurance and is a insurance company which underwrites insurance and therefore risk of other insurance companies. While a SBI Life Insurance or LIC or ICICI Lombard would issue insurance to an individual or company and take the risk on themselves, they would have the same passed on or in turn underwritten by GIC RE.

If theoretically an insurance business was to go down under it would never be a underwriter as his risk is geographically and business wise distributed. GIC RE for example does business with 162 countries and across businesses.

The issue is priced at a PE multiple of 24.97 times making it far more attractive than the recent issues from general insurer ICICI Lombard and life insurer SBI Life.

The issue size is large and there would be effectively firm allotment for retail investors based on mathematical calculation. You need 27 lakh applications for the issue to be subscribed on lot basis and the largest application size was in Cochin Shipyard which was about 20.5 lakh applications. In this issue HNI interest would not be there because of the discount offered to retail. It makes sense to apply for this reinsurer and participate in the growth story of Indian and global insurance companies.

RBI at its review meet kept policy rates unchanged. It did however tweak the SLR rates to give some relief to banks and effectively reduce their cost of borrowing.

Immediately after Diwali one will see results for the July to September quarter being declared. One hopes and prays that there are surprises this time around or the extreme valuations are likely to give way. Even the liquidity with mutual funds may not be enough to hold them thereafter.

Markets are likely to make another attempt to cross the all-time highs. Ride the rally till the same continues.

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