LIC IPO: Is It Worth the Hype?

The  Government of India and the general public geared up for one of the biggest launches, LIC IPO, which was up for grabs on May 4. With the biggest IPO of the decade, most experts talk about how this offer will benefit investors in terms of a long-term investment scheme. 

According to various sources, the Government of India has diluted a 5% stake in the firm with a corresponding valuation of Rs. 75,000 crores. Finance Minister Nirmala Sitharaman has already reviewed the progress in a meeting with the top representatives of the ministry.

This blog will look at the various aspects of the LIC IPO, what to expect, and whether you should partake in this frenzy.

LIC IPO Details

The Government of India has the approval to dilute its 5% stake in LIC. The permission for the issuance and sale of up to 221,374,920 share options was granted through a letter dated April 26, 2022. Further, it has been decided that the employee reservation quota will not exceed 5% of the equity share capital, and the policyholder reservation portion will not be more than 10% of the offered size. 

Given Below are Some of the Crucial Details of this Offering:

What Makes LIC IPO Exciting?

All the general signs currently are pointing out that investing in this IPO is a financially sound decision, particularly if you want to diversify your portfolio. Given below are some of the other reasons why the expectations from this public offering are sky-high:

• LIC enjoys more than 70% market share of the insurance industry in the country.
• LIC’s net profit soared to Rs. 1437 crores in 2021.
• Reports have stated that all LIC policyholders will have a 10% reservation in the IPO subscription.
• LIC provides an array of investment options for potential long-term gains.

What are the Risks of LIC IPO?

In this ever-volatile business environment, there are a few factors that might add to the risk of this initial public offering. Given below are some of the risk factors that will have a probable effect on the mega IPO offering of the decade:

• Any unwanted publicity that hurts the brand’s reputation, name and perception.
• A potentially adverse change in persistency metrics. This ratio indicates how many policy members are making regular premium payments with respect to policies with the insurer. Any negative impact on this aspect might lead to undesirable changes.
• Effect of dividing individual consolidated LIC ‘Life Fund’ into two different funds, namely participating and non-participating policyholder’s funds. 
• Variation in the value and/or the number of claims regarding the assumption models used for pricing the products and setting reserves.
• Growing dependency on the sale of participating products and single premium schemes for a major chunk of its revenue.

What Fuels LIC’s Credibility?

The Life Insurance Corporation of India has been the leading insurance provider for more than 65 years. It has proved to be an absolute juggernaut in the insurance industry and enjoys a 61.6% market share with respect to premiums. The organisation also has a 61.4% share in terms of New Business Premium, 71.8% market share in the number of individual policies issued, and 88% share in the number of group policies issued for the year ending on December 31, 2021.

LIC’s product portfolio for individuals comprises participating and non-participating products like term insurance schemes, savings insurance schemes, health insurance offers, pension and annuity schemes, and even post-life cover.

Given below are some of the competitive strengths of LIC which make this IPO an intriguing investment option:

• LIC is the country’s largest asset manager and has established a track record of posting profit and healthy financial performance. 
• Pan India presence via an extensive omni-channel agent network of over 1.33 million employees. 
• Customer-based business model and trusted brand presence. 
• Cross-segment mix of products and services that cater to all individuals while maintaining a singular product portfolio dominated by participating life insurance policies.
• Utilising advanced technology to enhance customer experience and regulate operational efficiency. 

LIC’s Key Strategies

Given below are some of the exemplary business strategies employed by LIC that have allowed the organisation to reach the heights it has today:

• Leveraging growth potential in the Indian life insurance sector.
• Increased diversity in its product portfolio via prominent contributions in non-participating schemes.
• Increased value creation through various financial and commercial means.
• Increased productivity by focusing on an extensive omni-channel distribution network.

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What to Expect?

According to various expert reports, this IPO is expected to sail through without overwhelming oversubscription numbers. It is expected to face decent demand from retail investors and HNIs. Given its absolute dominance of market share in the insurance industry, this IPO will enjoy adequate traction.

Several other reports state that most of the global investors that the Centre was hoping may pass up the chance to invest in this IPO. Initially, the Centre has held talks with over 200 large investors like sovereign wealth funds and other such entities who take investment decisions based on governance, environment and social history.

These investors are expected to be considering investing in the organisation’s future security listings after gauging the performance as a listed organisation. This might be due to the ongoing Russia-Ukraine conflict, making several foreign investors sceptical about future returns. They now also factor in risks related to currencies and potential embargoes while investing in emerging markets. 

The aggressive stance adopted by the US Federal Reserve has further led them to be cautious and consider safer investment options. Regardless, the overwhelming response from domestic investors and a few other foreign investors have led the Government to go ahead with its plans. Experts believe this will lead to a fresh wave of new investors joining the market. 

The LIC IPO is a golden opportunity for employees and retail investors to invest in the corporation for long-term and quick profits. LIC is the largest asset manager in the country with over $500 billion in assets and has a dominant market share in an industry which is still relatively underpenetrated.

This means that when such offerings come into the market, they boost the investor’s confidence. Also, it will surely increase the number of Demat accounts being opened in the country. The overall valuation of LIC has also been an aspect of concern for investors, as the recently released profits were negligible compared to the giant size of the organisation. Furthermore, history has shown that PSU stocks have generally disappointed investors. This would imply that the government will need to make provisions for investors with respect to both long-term and short-term gains.

Should You Invest?

Several experts have recommended that interested investors should subscribe to this public offering. This is mainly due to the organisation’s mammoth size and sturdy market presence. Regardless of adverse factors like dropping market share, low short-term persistency ratios and below-par margins, the current offering is too good to miss out on. 

This is can be attributed to LIC’s domain authority, a rise in profits due to changes in distribution norms and a strong outlook for sector growth. All these signs suggest that any potential investor should consider subscribing to its IPO on a short to medium level basis.