The LIC Initial Public Offering (IPO) begins on Wednesday: Should First-Time Investors Invest in the Initial Public Offering?

  • May 2, 2022, 12:38 p.m.

Life Insurance Corporation of India‘s (LIC) initial public offering (IPO) is all set to be opened for subscription on May 4. The government plans to raise Rs 20,557 crore through the issue by diluting 3.5 per cent of its stake in the state-run insurance behemoth. It is expected that there will be a lot of investors who don’t have prior experience of parking money in an IPO and will be taking part in LIC’s initial share sale. They will look to participate in the subscription process, perhaps for the first time.

The relentless rally in stocks since the outbreak of the pandemic has lured younger and tech-savvy cohorts. Meanwhile, growth in demat accounts is poised for another big leap with the much-awaited LIC IPO this week.

May is likely to be a record month for demat account openings, said Varun Sridhar, CEO of Paytm Money. "It (LIC IPO) is a milestone event for the Indian capital markets," he said.

LIC, clearly, is no ordinary company going to the stock markets to raise some money. Formed by an act of Parliament by merging 245 private insurance companies in 1956, it is the fifth-largest insurer in the world in terms of gross premium. The company has more than one lakh employees, nearly 5,000 offices, and about 14 lakh agents. It manages assets worth Rs 38 lakh crore, which is a whopping 15 times more than those managed by SBI Life, the second biggest insurance company in India.

The government wants the policyholders to chip in by buying into their insurer and has set aside 10 per cent of the total equity shares on offer exclusively for policyholders and employees, at a discount. LIC had gone on an overdrive of advertisements and public campaigns, calling on policyholders to update their PAN numbers and become eligible to apply for this 10 percent, and pushing LIC agents to get the message across.

To woo younger first-time investors, LIC has launched digital campaigns on social media. For instance, Religare Broking, for instance, launched the Pre-Apply LIC IPO app. "To this younger generation, LIC may not appeal as a risk partner. But when it comes to investing, it definitely will, "said Ajit Misra, vice-president and senior technical analyst with Religare Broking.

Should First-Time Investors Subscribe to the LIC IPO?

A successful listing outweighs the potential risks. And ‘right-sizing’ the issue was a good move. The valuation was "fair and attractive," said Tuhin Kanta Pandey, secretary, Department of Investment and Public Asset Management. "We want to champion LIC as a long-term value creator in the equity markets. The IPO is the first step of long-term value creation for LIC shareholders."

Axis Securities' MD & CEO, B. Gopkumar, said, "We believe first-time investors should apply to the issue as it allows the applicant to invest in a market leader with a long growth runway." Though there is skepticism around first-time investing, we believe investors would be assured by the long legacy and the solid brand value and recall that LIC enjoys. Applying to the issue allows first-time investors to directly own a stake in a strong brand across "Bharat." Additionally, the expectation of a discount for retail and policyholders, enabling marginally higher returns, could push first-time investors towards the issue." He also cautioned that while near-term market volatility is likely to weigh on stock performance, we remain positive from the long-term perspective.

Parth Nyati, founder, Tradingo, said, "LIC is the largest life insurer in India, with a 61.6 percent market share in terms of premiums (or GWP) and a 71.8 percent market share in terms of the number of individual policies issued as of December 31, 2021. LIC is synonymous with insurance in India and enjoys a phenomenal brand recall. We believe India’s highly underpenetrated life insurance space is still at a nascent stage and is attractively positioned to capture the huge growth opportunity. LIC enjoys many competitive advantages, like strong brand value, an extremely large scale of operations, a huge network of agents, and an envious distribution network. The issue is priced at 1.1 times its embedded value, which is a steep discount compared to its Indian and global peers. Nevertheless, first-time investors must be aware that the business of insurance is long-term in nature, which is why we recommend this issue for the long term only."

Author : Rajdhani Delhi Representative

Rajdhani delhi representative

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