LIC IPO Opens Wednesday, Here’s Who Should Invest and Who Shouldn’t

If there’s one company that has well and truly touched the lives of every Indian zindagi ke saath bhi, zindagi ke baad bhi, it is undoubtedly Life Insurance Corporation (LIC) of India. The juggernaut, which is the 10th largest global insurance player in terms of total assets managed, is synonymous with the word “insurance” for almost 1.39 billion Indians. Its scale needs no introduction.

And tomorrow, LIC is making its grand debut in the Indian stock market. This will singularly be the biggest-ever Initial Public Offer (IPO) in the history of Indian stock markets.

Through this offer, which is priced between Rs 902-949 per equity share and has a face value of Rs 10, the government intends to raise about Rs 21,000 crore. And all this through an offer for sale (OFS) which will reduce just 3.5% of its stake.

Retail investors are waiting with bated breath for May 4, as positive bids by institutional investors and qualified institutional buyers (QIBs) are already underway. Before the IPO opens to the public, these investors participate in the show. Here, 50% of the offer has been earmarked for QIBs, 15% has been kept aside for non-institutional investors.

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And this has already been fully subscribed, per an exchange disclosure by LIC on May 2. Reports suggest that about 71.12% of the total anchor offer was lapped up by 15 Indian mutual funds.

According to Shifali Satsangee, founder & CEO, Funds Vedaa, “The LIC IPO seems strong and has been successful in attracting some major anchor investors. Moreover, it has been gaining a lot of traction in the grey market as well.”

But the remaining 35%, which has been side-marked for retail investors, will meet its fate on Wednesday. The subscription opens tomorrow and ends on May 9, 2022.

The LIC Family

As NISM certified investment advisor Nema Chaya Buch puts it, “LIC is the largest player in insurance segment in India. It enjoys almost a monopolistic position here, along with a rich operating history. What adds to the issue is that LIC’s valuation for IPO purposes seems fairly priced, as compared to its competition.”

LIC has offered a discount of Rs 60 to all its eligible policyholders. Additionally, it will offer Rs 45 off to general investors. Notably, the minimum lot size threshold is set at 15 shares. And the maximum bid amount for all retail investors is set at Rs 2,00,000. That means 14 lots or 210 shares are the most an individual can apply for.

And LIC indeed makes for a favourable add to your investment portfolio. But only if you are an existing investor in the market.

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“LIC IPO participation may be favourable from listing gains point of view for current investors. Since many of us have at least one or the other LIC product in our portfolio, the discount offered to them can add to the overall fizz,” says Pune-based personal finance strategist Sanjeev Dawar.

Your successful shares will be credited to your demat account by May 16. And in case you don’t get allotted your desired number of shares, or any shares, your money will be refunded by May 13.

But the behemoth issue is not without its fair share of drawbacks.

As Satsangee points out, “LIC has the highest number of NPAs in the industry. According to LIC, as of September 2021, Rs 11,289 crore had been categorised as other investments, out of which Rs 5,350 crore are NPAs. A rising competition in the insurance space has ensured a significant erosion of LIC’s market share. And the weak global cues don’t help the cause.”

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While LIC’s scale is a blessing, it’s also a serious hurdle in the company’s adoption to digitise and innovate. Picture this. Most modern insurance companies have gone all-online, bringing insurance products directly to customer screens. But for LIC, its famed agents still bring the bulk of business.

This obstruction could be a problem, notes Buch. “Given its size, its operating model will take some time to change, and bring innovation in insurance products. And in the situation where pandemic resurges, claims would increase, which could put pressure on company’s margins.”

Don’t Get Caught Up in the Hype

Fear of missing out, peer pressure or simply because “everyone is doing it” should not guide your investment decision. If you are planning to open a demat account just to get your hands on the LIC shares, Dawar suggests otherwise.

“It has been observed that many first-time investors are either opening a fresh demat account or are being approached by service providers to open the same. Such investors need to understand the complete product and process they are investing into. Investing just into the LIC stock may not serve their financial goals. Here, a decision based on the individual’s risk tolerance rather than herd mentality would be prudent.”

Here’s hoping that May the 4th and LIC’s force be with you!

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