The FM Nirmala Sitharaman has announced the plan of the Govt. of India to launch a mega issue of the Initial Public Offer (IPO) of the Life Insurance Corporation (LIC) of India, which is the largest insurer organization in India with a market share of around 69% share in the insurance business. Apart from being the largest insurer that offers a wide range of insurance services for the population of every age group, it is one of the largest institutional investors in India and has a huge investment portfolio. It has the highest employee reach with around 2.9 lakh employees along with the additional network of 22.78 lakh agents supporting the insurance business.
The Life Insurance Corporation of India was created under the LIC Act in the year 1956 and was nationalized under the industrial policy resolution of 1956 that intended to give control of the insurance business to the Government. As of now, the Govt. of India holds the major stake in LIC, accounting for 100% control in LIC holding a net-worth of Rs. 34 trillion in total. Considering the current drop in the growth of the banking, financial services, and investment sector in the country due to the COVID-19 pandemic, the Government of India intends to raise funds by offering a portion of its stock to the public through IPO as the listing will cause a huge influx of funds to boost the business operations on one hand, and will help to attract investors in India as well as the foreign investors on the other hand.
There is huge excitement about the LIC IPO in the country, which is also being termed as the “one with the potential to become the largest stock of Indian capital market” its unique brand image among insurance companies. It is also being advised to make applications through 2-3 different Demat accounts to have bigger chances of obtaining allotment of the shares in the IPO. Let’s know other important details about the IPO-
Details of the LIC IPO
- Disinvestment Target of the Govt- Under the IPO, it is generally expected that the IPO will be at a valuation of around 12 lakh crore to Rs 15 lakh crore, which would help the government raise enough funds to meet its Rs 78,000-crore divestment target for 2021-22, post-which, it will have a market capitalization of Rs 13-15 lakh billion.
- LIC IPO Size – Through this IPO, the Government is planning to sell 10% of the equity as owned in the LIC at the valuation as provided before, around Rs. 8 lakh crores to Rs. 11 lakh crores. However, the government will continue to own a major stake in the insurer organization to protect the interests of the policyholders. Under the regulatory provisions, the Government’s stake cannot go below 51 percent by law that will be maintained forever, and even after the completion of five years, it cannot sell more than 25 percent of its total stake in LIC.
- Reservations for Certain Categories-For encouraging participation of the common man in the LIC IPO, the Govt. plans to offer at least 5-10% of the size of the IPO to the policyholders at certain competitive prices. It is expected that some other reservations may also be allowed for anchor investors and retail investors. Thus, it is generally expected that many of the policyholders would be interested in the IPO and would make an application for allotment of shares in the IPO.
- Amendment In rules & regulations-It is not only the policyholders whom the Govt. intends to attract market investments from, but also from foreign investors by allowing them to participate in the public issue under the automatic route and not through the Govt. route for which the Government of India is considering making amendments in the FDI policy.
- Opening of Demat Accounts- Since, most of the policyholders still do not hold a Demat account, therefore it is expected that as many as one DEMAT account will be opened. All the necessary notifications related to the IPO will be provided through the document is published by the registrar of the IPO.
- Expected Date for Launch of IPO-The Govt. of India had earlier planned the launch of the mega IPO for the financial year 2021-22. However, the process of bringing the issue slowed down due to the Covid-19 restrictions. It is being expected that the issue will be completed by the fourth quarter of the F.Y. 2022-23.
What are the pre-requisites for participating in the LIC IPO?
Therefore, it shall be compulsory for every person who wishes to make an application for allotment of shares in the IPO to have the following-
- PAN details
- A Demat Account in any depository participant (NSDL/CDSL)
The applicant having a Demat account already may apply through any of the stock-broker firms or banking institutions providing the ASBA services (Application Supported by Blocked Amount). LIC is one of the most trusted brands, domestically as well as internationally is known for its efficient services, brand image, and corporate excellence. Thus, getting an opportunity to acquire an investment in the LIC, is an attractive long-term investment opportunity for investors.
