There are chances that the much-hyped LIC IPO may not be as colossal as was expected before. Earlier analysis pegged the issue size at Rs 8-10 crore, making it the largest IPO launched in the country, which might reduce to Rs 45,000-55,000 core depending on valuation. It is the third time that the market has revised its valuation of the LIC IPO. The government is preparing the groundwork to remove all hurdles and seek parliamentary approval before moving to SEBI. On the other hand, SEBI has also initiated necessary changes in the Securities Contracts Regulations 1957, which will help fast track the process. However, the issue size can come down drastically if the government decides to divest a smaller portion.
SEBI amended rules to speed up the process
Currently, issuers with more than Rs 4,000 crore market capitalisations need to offer a minimum of 10 percent of post-issue market value to the public and achieve 25 percent in public holding in the next three years. The changed rule suggests that the issuer can now offer Rs 10,000 crore and 5 percent of the incremental value beyond a valuation of Rs 1 lakh crore. The final LIC IPO size will depend on the valuation of the business.
How will SEBI’s changed norms impact LIC IPO price?
A conservative estimation suggests that post valuation is likely to be Rs 10 lakh crore or Rs 15 lakh crore, once embedded valuation comes to the fore. With changed SEBI norms, at Rs 10 lakh crore yardstick, LIC IPO size will probably be Rs 55,000 crore. And, at a market capitalisation of Rs 15 lakh crore, IPO valuation can reach up to Rs 80,000 crore. Conversely, if the value is pegged at Rs 8 lakh crore, the IPO size will alter to Rs 45,000 crore. Nonetheless, it would still be the largest IPO launching in India.
When is the LIC IPO expected?
LIC India IPO is expected in the third quarter of the current fiscal. Against the backdrop of the country’s economic recovery post-COVID and robust performance of the equity market, the market expects a smooth sailing for LIC IPO.
The issue is also likely to benefit from the high liquidity in the global market and inflow of foreign portfolio investment. FPI recorded a net investment value of Rs Rs 2,61,968 in the Indian equity market in the current fiscal. When launched, LIC IPO would need support from all three sections of foreign direct and portfolio investors and HNI investors for success.
There will be a reservation of 10 percent issue size for LIC policyholders, which is currently more than 30 crore.
How did LIC perform in the pandemic year?
In September 2020, LIC recorded market share regarding the number of policies and first premium collected at 67.82 and 70.57 percent.
LIC is a contrarian investor, meaning it invests according to market sentiment. It invested more than Rs 2,60,000 crore in debt and equities in FY21, a value higher than the last year’s Rs 2,44,931 crore and recorded a profit in equity investment of Rs 15,000 crore.
Besides, its first year’s premium collection grew to Rs 25,000 crore against Rs 24,867.70 crore for the same period last year. It has also settled more than 82 lakh claims worth more than Rs 48,000 crore.
The LIC divestment plan is a big step from the government, trying to reach its divestment goal through it. The money raised from issuing LIC IPO would help the government meet project expenses. To make it smooth sailing, the government has brought changes in The LIC Amendment Act, making it a part of the Finance Bill. However, experts believe that pricing would be critical for the success of the offer. Earlier, two public sector general insurers, General Insurance Corporation of India Ltd and New India Assurance Co Ltd, were launched in 2017. The New India Assurance shares floated in the price bracket of Rs 770-800 are now quoting at Rs 164. Similarly, General Insurance Corporation shares priced at Rs 912 are currently trading at Rs 170, incurring losses for investors.
The sheer size of the offer will attract a lot of investors to the LIC IPO. However, investors need to analyse the issue carefully before investing. LIC IPO price band is not yet confirmed but possibly the government will aim for a higher valuation. So if you are interested in applying for LIC IPO, analyse its valuation carefully before subscribing.
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