Indeed, LIC’s long-awaited initial public offering (IPO) is fast approaching. The IPO could be delayed by market volatility caused by the Russian-Ukrainian conflict. Being the largest life insurance company in India and the fifth largest in the world, the listing of LIC on the stock exchange is expected to change a lot of things in the Indian capital market.
For starters, investors’ portfolios will change when LIC shares begin trading on the exchange. Indeed, seasoned investors cannot afford to ignore the market leader in life insurance with more than two-thirds of the market share. Even at a generic level, when designing portfolio structures, investors still show a preference for the market leader in an industry.
The second reason contributing to investor interest in LIC is the underserved nature of the life insurance market in our country. Despite the fact that LIC underwrites millions of insurance policies, the insurance premium to GDP ratio in India is at
3.7 percent, well below the global average of
7.23 percent. This means that most Indians have insufficient life insurance compared to citizens of other countries.
The third importance of LIC’s listing is the potential change in benchmarks. It is possible that LIC will be included in the S&P BSE Sensex and Nifty50 very soon. This would mean that another large cap company will be replaced by LIC. Once that happens, we could see market rotation as investors’ portfolios adjust to the nation’s largest insurer.
The fourth important aspect of the LIC list relates to the disclosure of the insurer on its portfolio. With assets worth Rs
39 trillion more than the entire mutual fund industry combined – LIC is the largest investor in government bonds and stocks. After listing, like any other publicly traded company, LIC will be required to publish quarterly information on its financial statements every quarter. This will allow all market participants to review the changes in LIC’s portfolio and take important benchmarks.
The LIC IPO has already created a euphoria in the market, and not a single day goes by without any news articles about the IPO. The government’s offer for the sale of a
5% of capital or 316 million shares will make LIC the third most valuable company in India.
The Draft Redemption Prospectus (DRHP) filed by LIC with the Securities and Exchange Board of India (SEBI) provides a comprehensive overview of how Indian households are increasingly investing in financial assets. Between 2012 and 2020, household savings in financial assets increased from 31% to 41%.
Capital markets in India will get a much needed boost due to LIC’s IPO. This has already triggered an increase in new demat account openings following the insurer’s campaign encouraging existing policyholders to open demat accounts.
LIC policyholders can benefit from a reduction on the price of the shares offered in the context of the initial public offering. Depending on its valuation, the government is likely to offload 5-10% of its stake in LIC.
There is a special reserve of
ten percent of the issue size for policyholders. It is possible that this category (of policyholders) will obtain LIC shares at a price lower than the price set in the bookmaking process for the IPO.
Indian stock market barely needs a push
3 percent-4 percent of Indians own shares. We think that number should be much higher because over time stocks have been shown to outperform all other types of financial assets, including bonds, real estate and gold. Hopefully more and more Indians take notice of this reality and start investing in stocks at the earliest.