• HDFC securities
• 07 Apr 2022
• LIC-IPO

The LIC IPO has been a topic of discussion among masses since its announcement. The Life Insurance Corporation of India (LIC) has completed its required paperwork for listing with the securities market regulator Securities and Exchange Board of India (SEBI). One may call it is as one of the most anticipated IPOs based on the amount of sheer buzz it generated last year and until today. However, it is important to remember that, one must do a thorough research on the investment opportunity and learn the nitty-gritties of the capital markets prior to making an investment decision and not depend on what is being written in the media and told by your friends and relatives.

Since the liberalisation of the Indian economy, the IPO market has grown in India. It has become one of the most popular ways for businesses to raise funds for various ambitious projects which require huge amounts of capital. The process through which a private company or a company held by a limited number of persons generally known to each other into a company whose shares are available to public for investment or trading is known as an initial public offering, or IPO. The public issuance of shares allows the company to raise capital while also providing an excellent opportunity for the general public to invest and earn returns in a company which has growth potential. There are generally two reasons for a company to launch an initial public offering (IPO). Its purpose is to raise capital or to repay the initial investors. It may be a bit of both also.

Following a surge in global IPO activity in recent months, Indian IPO markets have continued to rise to new highs. From prominent names like Nykaa and PayTm to Latent View Analytics and Sigachi Industries’ listings, the year 2021 saw IPOs of over 60 plus companies. Some IPOs like that of Paytm saw a downhill graph despite being oversubscribed 1.89 times. What caused this to happen? The oversubscription rate for retail investors, or those who bid for shares up to Rs 2 lakh, was 1.66 times. This means that investors bid for 166 shares out of every 100 available. The issue was only 0.24 times subscribed by non-institutional investors, which primarily include high net-worth individuals (HNIs), or individuals who bid for shares worth more than Rs 2 lakh in an IPO. This means that these investors only bid for 24 shares out of every 100 available. Many retail investors and HNIs hope to profit by selling out on a stock's first day of trading. If an IPO is massively oversubscribed and investors who did not receive an allocation in the IPO are looking to buy it, the stock's price rises on the first day of trading. The stock's price rises due to increased demand, and those who sell it profit. In the case of Paytm, the retail portion was barely oversubscribed, and the HNIs barely bought any of the stock. As a result, those hoping to sell out their IPO allocation on the first day of trading were unable to do so. The value of the stock dropped. In contrast to Paytm’s scenario, IPOs like Nykaa and Zomato caught the investor’s fancy as they were oversubscribed 82 times and over 38 times respectively.

Even though 2021 was a rough ride economically for India and the globe, the IPO market recorded companies raising approximately Rs.1.2 lakh crores, the highest in any calendar year in India. Due to rising financial savings, buoyant equity markets, and outperformance of recent IPO listings, India's IPO markets have improved over the last three years. Flows into equity markets, particularly domestic flows, have improved recently, resulting in increased demand for new issuances. The increasing size of IPOs indicates that the companies tapping capital markets are among the larger, more established companies looking to expand their businesses while also providing exits to early stage investors. Keeping this scenario in the backdrop, the government made a decision to launch the LIC IPO and offer sale of 31,62,49,885 shares.

The Indian government intends to sell 5% of its stake in LIC for nearly INR 65,000 crore. The Life Insurance Corporation of India (LIC) has been providing life insurance in India for over 65 years and is the country's largest life insurer. It holds a market share of 64.1% in terms of premium (or GWP), a market share of 74.6% in terms of individual policies issued, a 66.2% market share in terms of new business premium (or NBP), an 81.1% market share in terms of group policies issued for Fiscal 2021, and a 55% of the total market share in terms of individual agents as of March 31, 2021. LIC's dominance among peers is unrivalled globally, with no other life insurance company in any country having such a large market share in its geography. Among the peer group studied, it ranks fifth in terms of net premium earned. LIC’s growth (CAGR) over the last four years is 6%, which makes it the third globally after Ping An Insurance (15%) and China Life Insurance Company (9%). It is also 10th, globally, in terms of the total assets in comparison with other life insurers as per December 2021 figures.

Currently, LIC is the sole public player out of the total of 24 life insurance companies in India with an employee strength of 1,05,738 and 1.34 million individual agents spread across the country. It has a network of 75 bancassurance partners, 3463 active Micro Insurance Agents and 174 alternate channels across India as per September 2021 data. LIC is India's largest asset manager, with assets under management totaling Rs.36.8 trillion as of March 31, 2021. As of March 31, 2021, LIC's AUM was more than three times that of all private life insurers in India. Additionally, it is roughly 16.6 times larger than the AUM of the second-largest player in the Indian life insurance industry (SBI) and 1.2 times larger than the AUM of the entire mutual fund industry in India. The investments of LIC in listed equities as on September 2021 represented approximately 4% of the total market capitalization of the National Stock Exchange. For the first half of financial year 2022, the net profit of the corporation was Rs.14.3 billion and the AUM reached Rs.39,558.9 billion.

According to experts, the listing of LIC shares will boost the Indian stock markets while also easing the government's divestment goals. Furthermore, if policyholders take advantage of the option to subscribe to the proposed 10% of the IPO reserved for them, several lakhs of Demat accounts will be opened, accelerating the country's equity craze. The LIC share's listing will help India's market capitalization and provide much-needed disinvestment funds to the government. But despite the advantages, the government has postponed the launch of the LIC initial public offering (IPO) because the valuation of the state-owned behemoth is taking longer than expected, and preparatory work is still incomplete. Furthermore, rising market volatility and uncertainty as a result of the ongoing Russia-Ukraine conflict may force the government to delay the IPO even longer.

The LIC IPO will undoubtedly be a watershed moment in India's listed financial market. But first, understand the business of the company and its potential and find out why the company is launching an IPO, familiarize yourself with the fundamentals, conduct research on the valuation and recent developments in the company, and always read the prospectus and other documents before investing. An opportunity as big as LIC IPO is well taken advantage of with the right set of services offered by HDFC Securities. It gives the investors an edge over other institutions with its research guidance and a quick 3-step IPO investment procedure.