October 3, 2017 / 8:20 AM / a year ago

UPDATE 1-India's SBI Life in modest debut after rich valuations for IPO

* Shares trade 3.6 pct higher in afternoon trade

* Investors bet on long-term potential but valuations limit gains

* Indian IPO sales may hit record in 2017 (Recasts , analyst comment)

By Devidutta Tripathy and Swati Bhat

MUMBAI, Oct 3 (Reuters) - 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 700 rupees 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 700 billion rupees from an estimate 460 billion rupees 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. (Reporting by Devidutta Tripathy and Swati Bhat; Editing by Edwina Gibbs)

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