What Investors Can Expect From India’s Biggest IPO

The central government is preparing to launch the mega initial public offering (IPO) of Life Insurance Corporation (LIC), which is expected in the fourth quarter of fiscal 2021-22. According to reports, the government will dilute a 5% stake to raise around 75,000 crores. Finance Minister Nirmala Sitharaman has already reviewed the progress of LIC’s proposed IPO during a meeting with senior ministry officials.

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

“LIC’s IPO is the only Indian PSU in the insurance industry to hold such a large market share. LIC’s first half net profit reached 1437 Cr compared to 6 Cr the previous year, mainly due to investment income. Net premium increased by only 1% for 1.86L Crore which is IPO positive. Oversubscription is expected, so we recommend applying through 2-3 different Demat accounts so that the odds are high,” said Manoj Dalmia.

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

“LIC’s IPO provides an excellent opportunity for retail investors and employees to invest in the company for the long term while realizing quick gains on the day of listing. LIC policyholders can have a 10% reserve on LIC IPO which is an added benefit,” said Ravi Singh, Vice President and Head of Research, Share India Securities.

Abhay Agarwal, Founder and Fund Manager at Piper Serica, SEBI Regd. According to PMS, the obvious question that investors will want answered is how transparent LIC will be to its shareholders.

“The size of LIC is staggering. It is the largest asset manager in the country with over $500 billion in assets. It holds 75% market share in a still underpenetrated industry. Its distribution network is huge. At the same time, the obvious question investors will want answered is how transparent LIC will be to its shareholders in terms of business strategy and post-listing performance. The 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 like to know if LIC will also continue to play this role after the IPO,” he said.

From a valuation perspective, LIC’s IPO is unlike any other IPO we’ve seen in the past year. Valuations are robust relative to peers in terms of estimated price to intrinsic value and price to earnings, says Divam Sharma, co-founder of Green Portfolio, SEBI registered Portfolio Management Services

“Given that LIC policies have higher penetration than the entire brokerage industry, it will be interesting to see how the upcoming IPO complements the dynamic equity stake growth,” he added.

Some bankers have described LIC’s public offering as India’s “Aramco moment”.

When this type of option comes in the market, which builds investor confidence, it will definitely add to the increase in Demat account opening, Ravi Singh said.

“On average, around 20-30 lakhs of Demat accounts are opened per month across the entire brokerage industry. If we compare the investment in the financial market against the population in India, the ratio is quite low. This is mainly due to the financial illiteracy of investors.When this type of option comes into the market, which builds investor confidence, it will definitely increase the number of Demat account openings and financial literacy,” said Singh.

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

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

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

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Robert D. Coleman