Life Insurance Corporation of India (LIC) IPO is all set to launch in the month of March before the end of the current fiscal year. The LIC IPO has been touted as the biggest ever in Indian history, expected to collect anywhere between INR30,000 crore to INR60,000 crore. That will be considerably higher that the size of Paytm IPO (Rs 18,300 crore) or Coal India IPO (Rs 15,200 crore)
With 61 percent share of the new premium collected and over 72 precent share in the insurance policies sold in India while commanding assets worth INR 39.7 trillion, the IPO is expected to set records vis-à-vis retail subscription and the money invested by going public. This can be predicted from the fact that the LIC assets are 1.1 times the entire mutual funds industry which is currently pegged at INR31.4 trillion and its equity investments are 4 percent of the total market capitalization of all the stocks listed on the National Stock Exchange.
LIC IPO set to create new record in Indian market; Key points
1. India currently has 8.4 crore demat accounts and of every account invests INR2 lakh, it would require a minimum of 7.5 lakh to over 2 crore shore market investors to mop-up the abovementioned figure, as per a report by CNBC-TV18.
2. Another potential hindrance to the IPO success is the 10 percent reservation provided by LIC for its 29 crore policyholders who may or may not have a demat account. The insurer has been trying to ensure that the policyholders open a demat account but have reportedly failed to mobilise its massive agent0network to achieve the same, as per the same CNBC-TV18 report. The strong agents-network also got impacted due to the pandemic and associated restrictions which impacted its bottom line. Closely related is the lack of an online distribution system which was exposed during the lockdown.
3. Another hurdle comes from a foreign source. The raging inflation in the US might force the Fed to raise the interest rates after a long time which might lead to a huge exodus of foreign portfolio investors from the Indian stocks, which might impact the liquidity required to make the LIC IPO a success.
4. Another uncomfortable fact is the “operating metrics” and business nature of LIC. “While it sells 72.5 percent of the policies in the country, its value share is 61 percent and its share of protection in individual policies is low, which results in just a 17 percent share of the total sum assured. This makes LIC more a seller of savings products than a life insurance provider, and limits its profitability—its margins are about half of the industry peers,” the CNBC-TV18 report further says.
5. LIC’s functioning autonomy may also impact the IPO especially in the light of examples such as bailing out the IDBI bank using policy-holders money on the Indian government’s order. To its credit, LIC has been open about its functioning. “Our Corporation may be required to take certain actions in furtherance of the GoI’s economic or policy objectives… The interests of the promoter as the controlling shareholder of our Corporation could be in conflict with the interests of our other shareholders. We cannot assure you that the promoter will act to resolve any conflicts of interest in favour of our corporation or the other shareholders. To the extent that the interests of the Promoter differ from your interests, you may be disadvantaged by any action that the Promoter may seek to pursue,” LIC said in