By Nandan Mandayam and Dhwani Pandya

BENGALURU/MUMBAI (Reuters) -Hyundai Motor India shares fell 7.2% on their market debut on Tuesday after retail investors gave a lukewarm reception to the country's biggest ever initial public offering (IPO) amid concerns about a lofty valuation and an auto industry slowdown.

The stock listed at 1,934 rupees on the National Stock Exchange, below its offer price of 1,960 rupees, and fell as much as 7.6% before closing at 1,819.60 rupees. That valued the company at 1.48 trillion rupees ($17.6 billion).

Hyundai, India's No. 2 carmaker with a market share of 15%, was targeting a valuation of $19 billion via the offering.

The record $3.3-billion IPO was oversubscribed more than two-fold last week, led largely by institutional investors. But concerns the price of the shares was set too high compared to future earnings deterred retail investors who worried they would not be able to make gains on the listing.

Including Hyundai, seven of India's 10 biggest IPOs have seen share price falls on their first days of trading, according to Dealogic. Losses have ranged from 5% to 27%, the data showed.

Analysts said Hyundai's weak debut reflected a high valuation, near-term weakness in car sales, and an increase in the royalty rate paid by the company to its South Korean parent.

"Hyundai's issue has been stiffly priced and that seems to be weighing down on its listing as well," said Arun Kejriwal, founder of Kejriwal Research.

"Besides, the volumes seen so far are driven only by institutional investors, and is rather poor for an IPO of Hyundai's size."

The Mumbai listing is Hyundai Motor's first outside South Korea. The IPO was the world's second-largest this year.

"Price, of course, will always be determined by the investors," Hyundai India's Chief Operating Officer Tarun Garg told reporters, when asked about the market reaction.

He also dismissed concerns over the royalty rate increase to 3.5% from 2.5%, terming it "in-line with market benchmark".

While Hyundai's market valuation is much lower than Indian sector leader Maruti Suzuki's $45 billion, analysts point to a narrower gap in their price-to-earnings (P/E) ratios.

The IPO valued Hyundai at 26 times its earnings for the fiscal year ended March, not far off Maruti's multiple of 29.

INDUSTRY SLOWDOWN

Shares of Indian rivals have also slipped in recent weeks as car sales slow after two years of record highs, with customers delaying purchases amid stubborn inflation.