LIFE INSURANCE CORPORATION OF INDIA (LIC) IPO

About the company

LIC is the only government owned insurance company in India. It was founded in 1956, by merging 245 insurance companies. It has been one of the most profitable companies of the government, if not the most. To further prove the point, lets look at a fact from 2006. In 2006, LIC contributed to 7% of the growth of the country. The total assets of the company are close to around $530 billion. The profits earned by this company for the quarter ending March 2020, was around Rs.2700 crores, which is more than what it made the year before. Now all of these points bring out the question of why does the government want to sell around 5-10% of the company? The center has a very ambitious target of around Rs.1.75 lakh crore for the financial year 2022 and already the divestment in Air India and BPCL has been delayed indefinitely. So, perhaps this is a way to reach the set goal.

About the IPO

This IPO was approved by the Cabinet Committee on Economic Affairs, in July. Although there has been no formal announcement as of yet, the IPO is assumed to hit markets around the third or fourth quarter of financial year 2021-22.

Impact on investors

Dubbed as the “Mega IPO” by the market, it will surely overshadow any other IPO the government has put out. The fact that 10% of the total listed shares have been reserved for the policyholders, is attracting more and more customers, no matter how small the policy they buy. LIC has increased its stakes in companies like Tata communications, Aurobindo Pharma, Bajaj auto, Rail Vikas Nigam, etc, as of March, 31st . Also, LIC covers a total market share of 66% and a good investment portfolio, as mentioned above, which can create good returns in the future.

Impact on the customers and LIC

After the IPO, LIC will be regulated by SEBI, under the Companies Act 2013. Up until now the government has been able to use the funds of LIC to bail out various public corporations like IDBI, very recently, but now the IPO will put a stop to it as the working of the company has to be very transparent.

Impact on the government

The divestment initiative of the government will be forwarded with this IPO along with that, it will bring a huge influx of cash of around Rs.1 lakh crores to the government.

Is it going to be a split IPO?

Recently the market has seen a lot of big IPOs, like Zomato. The IPO for Paytm has also lined up- worth Rs.1600 crores, making it the largest IPO in India, so far. Thus, people will save up or reserve their cash for such an IPO too and their current ability to absorb it will not be high. Keeping this fact in mind, LIC IPO may be released in two tranches, the second part being a follow-on-offer.

Conclusion

One of the main advantages of investing in the LIC IPO is that the backing of the government is not going to stop just because the company is now publicly traded. The number of LIC agents and their network, all over the country is mammoth, around 13.53 lakh as of 31st March, 21. Keeping all of this in mind, we can confidently say that this is going to be one of the most successful IPOs that the government has put out.