Table of Contents
What has happened?
- India’s largest financial institution, Life Insurance Corporation (LIC), which manages around Rs 40 lakh crore of public money,
- Is getting listed on the stock exchanges with a Rs 21,000 crore initial public offering (IPO) early next month.
Pricing of the IPO
- LIC on Wednesday priced its IPO, the largest in the history of the capital market despite a reduction in size, at Rs 902-949 per share.
- LIC has offered a discount of Rs 60 for policyholders and Rs 45 for retail investors and employees.
- The IPO will open on May 4 and close on May 9.
- The government will sell 22.13 crore shares through the offering.
- Investors can bid in multiples of 15 shares.
- The size of the IPO was cut from Rs 65,000 crore to Rs 21,000 crore
- as the Russian invasion of Ukraine and sustained selling by foreign portfolio investors (a net of Rs 1,48,078 crore since December 2021) affected the stock markets.
- The government, which wholly owns the insurance behemoth, plans to sell a 3.5 per cent.
What experts say on the issue?
- A couple of leading mutual fund managers said the reduction in valuation has made the issue attractive.
- “While there is a lot of inherent strength in the company and there are growth prospects, the valuations too seem fine now after the revisions.
- As the market is not witnessing a mad bull run that was being seen over the last year, there is a possibility that investors may not get immediate listing gains.
- But it will generate decent returns over the next three to four years,” a leading fund manager said.
- “There is a lot of strength in the company. There are many categories where LIC is not present on the business front, and so there is a lot of scope for it to explore these and grow.
- As LIC had a monopoly, one can only lose market share from such a position.
- It is, however, important to note that the company still maintains around a 60% market share and it could be a good company to invest with a medium- to long-term view,” said another fund manager.
- Some see the listing as part of a strategic vision of the government aimed at long-term value creation for shareholders.
- “There are two ways to look at it: one in the present case where everyone is buying policies to safeguard themselves from uncertainties… second, due to huge buying power in the hands of consumers, the margins might reduce.
- One can subscribe with a long-term perspective,” said Manoj Dalmia, founder and director, Proficient Equities Limited.
How big is LIC?
- LIC, formed by merging and nationalising 245 private life insurance companies on September 1, 1956, with an initial capital of Rs 5 crore, Now manages around Rs 40 lakh crore assets.
- It is the fifth largest life insurer globally and the largest asset manager in the country.
- As on December 31, 2021, it covered 91% of all districts and had 1.33 million individual agents, and had a market share of 61.6% in terms of premiums or GWP,
- 4% in terms of New Business Premium, 71.8% in terms of number of individual policies issued, and 88.8% in terms of number of group policies.
What are advantages of listing?
- LIC’s profile will get a boost. Investors can trade in its shares or keep them long-term.
- LIC will become more transparent and answerable to shareholders for any mismanagement.
- It will have to follow the listing guidelines of stock exchanges and SEBI regulations.
- While Pandey has ruled out a follow-on issue in the current financial year, markets are expecting more offers in the next financial year.
- Moreover, the insurtech industry will benefit.
- “Most of the public insurers in the country were still evaluating digitisation of customer journeys, which will get a boost post the LIC IPO,” said Surjendu Kuila, co-founder and CEO, Zopper.
Q) Which among the following is the first general Insurance company in India?
- The oriental insurance company
- GIC Re
- New India Assurance
- Triton Insurance Company limited
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