Indeed, the much-awaited initial public offering (IPO) of LIC is just around the corner. The IPO may get delayed to the market volatility caused by the Russia-Ukraine conflict. Being the largest life insurance company in India and the fifth-largest globally, LIC’s listing on bourses is set to change many things in the Indian capital market.
To start with, investor portfolios will change when LIC shares commence trading on stock exchanges. This is because seasoned investors cannot afford to ignore the life insurance market leader with over two-thirds of the market share. Even at a generic level, when portfolio structures are designed, investors always show a preference towards the market leader in a sector.
The second reason contributing to investor interest in LIC is the under-serviced nature of the life insurance market in our country. Despite the fact that LIC writes millions of insurance policies, the insurance premium-to-GDP ratio in India is at
3.7 per cent, well below the global average of
7.23 per cent This means that most Indians have inadequate life insurance as compared to citizens of other countries.
The third significance of LIC’s listing is the potential change in the benchmark indices. It is possible that LIC could be included in the S&P BSE Sensex and Nifty50 very soon. This would mean that some other large-cap company will be replaced by LIC. Once this happens, we may see a churn in the market as investor portfolios get adjusted to the largest insurer in the country.
The fourth important aspect of LIC’s listing is to do with the insurer’s disclosure about its portfolio. With assets worth Rs
39 trillion more than the entire mutual fund industry put together—LIC is the biggest investor in government bonds and equity assets. Post-listing, just like any other listed company, LIC will have to make quarterly disclosures on its financials every quarter. This will allow all market players to review the changes in LIC’s portfolio and take important cues.
The LIC IPO has already created a euphoria in the market, and not a single day passes without any press report on the IPO. The government’s offer for the sale of a
5 per cent stake or 316 million shares will make LIC the third-most valuable company in India.
The draft red herring prospectus (DRHP) filed by LIC with the Securities and Exchange Board of India (SEBI) gives comprehensive insights on how Indian households are increasingly investing in financial assets. Between 2012 and 2020, household savings in financial assets have risen to 41% from 31%.
The capital markets in India will get a much-needed push due to the LIC IPO. It has already triggered a surge in new demat account openings following the insurer’s campaign encouraging existing policyholders to open demat accounts.
LIC policyholders may receive a discount on the price of shares offered in the IPO. Depending on its valuation, the government is likely to offload 5-10% of its stake in LIC.
There is a special reservation of
10 per cent of the issue size for policyholders. There is a chance that this (policyholders) category will get LIC shares at a discount to the price fixed in the book-building process for the IPO.
The Indian stock market needs the push as barely
3 per cent-4 per cent of Indians own equity assets. We believe this number should be much higher because, over time, equities have been shown to outperform all other types of financial assets, including bonds, real estate, and gold. Let us hope more and more Indians take note of this reality and begin investing in equities at the earliest.