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The central government gears up to launch the mega initial public offering (IPO) of Life Insurance Corporation (LIC), which is expected in the fourth quarter of the financial year 2021-22. As per the reports, the government will be diluting a 5% stake in it to raise about 75000 crore. Finance Minister Nirmala Sitharaman has already reviewed the progress of the proposed LIC IPO in a meeting with top officials of the ministry.

Manoj Dalmia Founder and Director-Proficient Equities Limited said that is a very good opportunity for retail investors and oversubscription is expected.

“The LIC IPO is the only Indian PSU in the insurance sector to hold such a big market share. LIC’s first-half net profit zoomed to 1437 Cr compared to 6 Cr the previous year, mostly due to income from investment. Net Premium increased by only 1% to 1.86L crore which is positive for the IPO. Oversubscription is expected so we recommend applying through 2-3 different Demat accounts so that the chance is high," said Manoj Dalmia.

According to market analysts, the LIC IPO will provide long-term investors with an attractive investment opportunity.

“The LIC IPO offers a great opportunity to retail investors and employees to invest in the company for the long term as well as making quick listing day gains. The LIC policyholders may have a 10% reservation in the LIC IPO which is an added advantage," said Ravi Singh, Vice President & Head of Research, Share India Securities.

 

Abhay Agarwal, Founder and fund manager at Piper Serica, SEBI Regd. PMS says the obvious question that the investors will want an answer to is how transparent will LIC be to its shareholders.

“The size of LIC is stunning. It is the largest asset manager in the country with more than $500 billion of assets. It has a 75% market share of an industry that is still underpenetrated. Its distribution network is humongous. At the same time, the obvious question that the investors will want an answer to is how transparent will LIC be to its shareholders in terms of its business strategy and performance after listing. LIC has historically been used as a market stabilizer and investor-of-last-resort by the government to bail out failed PSU IPOs. Investors would want to know if LIC will continue to play this role post-IPO also," he said.

From a valuation standpoint, the IPO of LIC is unlike any other IPO’s we have seen in the past year. The valuations are robust compared to its peers in terms of estimated price to embedded value and price to earnings, says Divam Sharma, Co-founder of Green Portfolio, SEBI registered Portfolio Management Services

“Considering LIC policies have higher penetration than the entire broking industry, it will be interesting to see how the upcoming IPO will complement the buoyant growth in equity participation," he added.

Some bankers have described the public offering of LIC as India’s ‘Aramco moment’.

When such type of option comes into the market which boosts the investors' confidence then it will definitely add to the increase in the opening of Demat account, said Ravi Singh.

“On average around 20-30 lakhs Demat accounts are opening per month in the whole broking industry. If we compare the investment in the financial market vs population in India then the ratio is quite low. This is mainly due to financial illiteracy among the investors. When such type of option comes into the market which boosts the investors' confidence then it will definitely increase the Demat account opening numbers and financial literacy," said Singh.

IPO-bound LIC on Tuesday reported 1,437 crore net profit for the first half of the current financial year.

The valuation of LIC will also be a sticky point. Recently it released its results for the first time and the profit was very small compared to its giant size. More so, PSU stocks have disappointed investors across the board. Therefore, the government will need to leave enough on the table for retail investors in form of both short-term and long-term returns. said Agarwal.

LIC, which is a household name in India, reaches practically every corner of the country. The Mumbai-headquartered company has 2,000 branches, more than 100,000 employees and 286 million policies.

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