-Arijit Malakar, Head of Retail Equity Research, Ashika Group
With multiple companies going public in the past few months, the listing of India’s biggest insurer comes as a monumental move. Recent reports show that the government plans to dilute a 5% stake in Life Insurance Corporation of India (LIC) through an initial public offering (IPO). Although the pricing hasn’t been decided yet, it is expected to be one of the biggest financial providers being listed for IPO to date.
Filed for listing, slated for approval, and to be launched by next month, privatization of LIC is a strategic move by the government to strengthen the country’s downswing economy. This recent announcement has left most retail and corporate investors with unremitting anticipation. Intended to fill the nation’s budget deficit with a potential aim of $10 billion, it could make LIC one of the most valuable publicly listed companies at par with Reliance and TCS.
The current foothold of LIC in the Indian market
Established in 1956, LIC garners approximately two-thirds share of India’s complete domestic life insurance segment. Holding a market share of 64.1% as of FY2020-2021, the insurer manages assets worth $530 billion, equating to approximately 16% of India’s GDP. While the company’s valuation is yet to be determined, it holds around 2,000 offices and 1,500 satellite offices that encompass more than one lakh employees and 1.3 million agents across the country.
The Indian government owns a 100% stake in the company, which also has a widespread global presence with subsidiaries in Bahrain, Bangladesh, Nepal, Singapore, and Sri Lanka. With the fifth-highest net premium amongst other players in the life insurance segment, LIC harnesses over 82% RoE, which is the highest among its global competitors.
How the LIC’s IPO will bolster the Indian economy
The Indian economy has been grappling with a funds deficit for the past couple of years. The pandemic-induced lockdowns further strained the economy, pushing millions towards unemployment, poverty, and even bankruptcy. The Indian government has been aggressively supporting the ambition of replenishing the budget deficit with privatization, which is already behind schedule as per the initial plans.
They have taken a multi-fold approach and raised around 120.3 billion by selling stakes in public sector enterprises (PSE) during the FY 2021-2022. The recent announcement for LIC’s IPO is charted to fill the budget deficit gap of around $ 7.96 billion.
In the market for around 65 years, LIC has become a household name with a strong presence in the South Asian market. Eyeing the upcoming IPO, the government is taking measures to amplify retail participation. Amongst a myriad of exclusive factors is the 0.35% brokerage on allotment offered to retail investors. Furthermore, LIC policyholders can benefit from the 10% shares set aside for them, which will potentially be offered to them at a rebated rate.
After being postponed for more than a year, filing for a LIC India’s IPO listing has raised anticipation in the domestic and global markets. Banking on the company’s millions of agents and policyholders, a stellar listing will undoubtedly push forth exponential growth for the Indian economy. India has an average of 81 million equity investors, and a positive lurch will positively impact the country’s budget, further strengthening the economy, which has been falling behind for some years now.