LIC IPO: Is the Prosperity at Stake?

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Introduction

There is a wave of IPOs being witnessed by the stock market recently. But the LIC’s (Life Insurance Corporation) IPO has created the most buzz among the investors and general public in the market.

The LIC IPO is the biggest IPO ever in Indian history. The Life Insurance Corporation was established in 1956 and since then, it is dominating the insurance market, offering a range of products, from traditional insurance plans to mutual funds, which cater to varied financial goals.

But how did its IPO perform well in its initial days of launch? And what’s the rationale behind this move by the Government? Let’s find this out.

How much ahead LIC has come?

There is already enough hype around this IPO, and well, we are here to add fuel to it. In 2001, LIC’s market share was 100%. Do you all understand what this means? Back then, LIC had a complete monopoly, with not even a single competitor attempting to snatch away its market share.

And at present, there are 24 life insurance companies in India, and LIC has a market share of 61%, being the only public sector company is the list. Not that bad, right?

But it’s not that happy of a story. Why would such a decades-old government insurance company, that still has more than half of the market share, be willing to sell its stake?

Rationale Behind this Move

Let’s talk in numbers. After its listing, LIC became the fifth-largest stock in market capitalization. There could be two reasons for the sale of the government’s stake: 

1.     To benefit from the listing gains, as the market is performing pretty well lately. Not only LIC would get a good price but parallelly also be able to achieve its disinvestment targets.

2.     The government is skeptical if it could fight the technologically advanced private players flooding in with venture capital money with its old school agent model.

Financial Analysis of LIC & the IPO

If you consider the picture, performance till now is pretty much distinguishable, and the initial hype is quite apparent and the same.

     (Source: Economic Times Wealth)

The LIC IPO was launched on 17th May 2022 with a price band of Rs. 902-949 and issue size of 21008.48 crore. But the twist happened when the declaration made offering Rs. 60 and 45 discounts to the policyholders and the employees, respectively. It got oversubscribed by 2.95 times. Though the LIC IPO was launched with a market cap of Rs.6,00242 crores, the closing price on 20th May 2022 was only Rs. 5,22,602.94 crores. Thus, we can conclude that this is lower than expected by Rs. 77,639.06 Crores against IPO’s issue price market cap.

Moreover, the Grey Market Premium (GMP) (GMP is a premium amount at which grey market IPO shares are traded and it reflects how the IPO is likely to react on its listing day. Grey market is an unofficial market where individuals buy/sell IPO shares before they officially hit the exchanges) of LIC IPO was negative, (-)13 Rs. on the 17th of May. However, better than the (-)25 Rs. recorded a week earlier, but still not good.

(Source: Economic Times Wealth) 

Conclusion

As the saying goes, not every time you should judge anyone by its past. So, either a person or a company. But while making investment decisions in shares, stocks, and IPOs, past performance is all an investor has to judge. The disinvestment of PSUs by the government isn’t a bad idea if one looks at it objectively. But, since LIC has a majority of stake in the biggest companies in the Indian share market, a slight disruption in the market could be disastrous.

But is this all? Or can there be another story behind it? Do you think the LIC would perform better in the long run as there’s only a short picture ahead of us till now?

Be careful when you apply for LIC IPO (or don’t)! Until then, bye-bye.

References-

  1. https://blog.finology.in/investing/lic-ipo
  2. https://bit.ly/3LIVocg
  3. https://bit.ly/3yZAKSD
  4. https://g.co/kgs/H9Hunn
  5. https://www.moneycontrol.com/ipo/ipo-historic-table?classic=true
  6. https://www1.nseindia.com/products/content/equities/ipos/hist_ipo.htm
  7. https://www.bbc.com/news/world-asia-india-61296184
  8. https://licindia.in/Bottom-Links/annual-report

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