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Life Insurance Corp's (LIC) IPO, India's largest public issue, was subscribed 67% on the first day of bidding, even as a surprise rate hike by the central bank roiled markets.

The government is looking to generate about 21,000 crore by selling 3.5% stake in the insurance behemoth.

Investors bid for 10.8 crore shares on Wednesday, compared with the total 16. 2 crore shares on offer, with the portions reserved for employees and policyholders already oversubscribed, exchange data showed.

The demand for LIC's IPO came even as the stock market fell 2.3% after the Reserve Bank of India unexpectedly hiked interest rates to tame inflation. 

"Considering the size of the issue, the demand seems to be quite good," said Yesha Shah, head of equity research at Samco Securities. "While the RBI rate hike has affected the market sentiment overall, we think it will have a limited impact on the LIC IPO ... because of the company's decent fundamentals, attractive pricing and valuation."

The IPO is set to close on May 9. The issue period also includes bidding on Saturday, May 7. LIC is offering a discount to employees and retail investors of 45 per share. Meanwhile, policyholders will be offered a discount of 60 per share.

"There could be some impact on listing gains, but we still feel the IPO will fly through. The real test will be on Thursday when we should see the entire impact of the rate hike in markets," Shah said.

The portion reserved for policyholders was subscribed 1.9 times, while that for employees was fully subscribed during the first day itself, as per data available on the BSE.

LIC has fixed the price band at 902-949 per equity share for the issue.

However, demand from qualified institutional buyers (QIBs) and non-institutional investors was muted. The non-institutional investors' portion was subscribed 26% while QIBs' portion was slightly higher at 33%.

Retail Individual Investor category picked up nearly 50% of the 6.9 crore shares set aside for this segment.

The share sale is through an offer-for-sale (OFS) of up to 22.13 crore equity shares. The shares are likely to be listed on May 17.

LIC shares were trading in the "grey" market at a premium of 95 rupees, around 1,044 apiece.

To drum up demand from retail investors, in addition to heavy advertising in local newspapers, some 1.2 million field agents were dispatched across India to woo many of LIC's more than 250 million policyholders to buy the shares.

Policyholders were also flooded with text messages earlier this year recommending they open an electronic stock holding account early so they can take part in the IPO.

Earlier this week, the 59.3 million shares set aside for anchor investors were subscribed at 949 rupees apiece. Norwegian wealth fund Norges Bank Investment Management and the government of Singapore joined the anchor book, along with several domestic mutual funds.

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