Giants getting ready to be listed within the inventory market

The Indian inventory markets noticed round 65 IPOs in 2021, incomes a complete of Rs 1,18,000 crore. That is nearly double the Rs 68,000 crore fund we noticed within the final finest yr 2017. Nonetheless, the nation has by no means witnessed an IPO like LIC IPO, which is anticipated to hit the markets quickly. With LIC, the Indian authorities goals to promote 5% of its stake, roughly INR 65,000 crore, to the general public insurer valued at ~18 lakh crore, making Paytm (earlier largest IPO) a dwarf at INR 18,300. The market cap of Reliance Industries is Rs 16.4 lakh crore. Although the IPO value band is but to be introduced, Life Insurance coverage Company of India is clearly among the many prime 3 listed names within the Indian markets.

Massive Brother of Indian Insurance coverage

LIC has a pool of personal listed friends within the insurance coverage sector, which makes the method of comparability simple. For starters, insurance coverage firms are valued when it comes to their Embedded Worth (EV), which has similarities to ebook worth however adjusted for future provisions and money flows. If we take a look at the primary product – life insurance coverage – it’s simple to see why the EV metric is used. Income for the insurer comes from insurance policies, however future money flows will probably be realized solely when premiums are paid.

LIC EV stands at Rs 5.4 lakh crore, above the common EV of its listed friends of Rs 31,045 crore. Enormous by each definition.

Behind that is LIC’s robust macro tailwind. India’s life insurance coverage penetration in 2020 was 3.2%, in comparison with different Asian nations resembling Thailand (3.4%), South Korea (6.4%) and Singapore (7.6%). The scope for progress within the dimension of the market is immense.

India’s largest institutional investor

From a product penetration standpoint, few monetary merchandise have matched LIC’s achievements in India. There are solely 35 crore demat accounts and 1.85 crore mutual fund buyers in India as in comparison with LIC’s 29 crore policyholders. LIC understands the energy of its attain via its omni-channel distribution community. It has made 35% of the entire reservation for retail buyers in its IPO for its policyholders and 10% of the opposite 5% reservation for its staff. Jan 2022 welcomed 34 lakh new demat accounts; Many of those alone could also be eyeing the LIC IPO, which is seen as a very good proxy to spend money on the India story.

LIC is India’s largest institutional investor with 520B AUM (Belongings Beneath Administration) – nearly equal to that of your complete mutual fund business. 19% of this publicity is in Authorities of India bonds. With an fairness AUM of $130 billion, it owns ~4% of the entire Indian equities, of which ~40% publicity lies within the prime 10 names of Nifty, proving that investing in LIC equals investing in India’s story. Why is it?

When investing in any government-owned firm, operational effectivity is on the prime.

Although there may be room for enchancment, LIC has finished nicely right here, being the third finest amongst its friends in FY2011. Whereas the highest 5 non-public gamers have a mean whole price ratio of 16.3 per cent, LIC’s is a decent 14.2%.

IPO will check the depth of Indian markets

However like all good IPO dramas, this one has a spin. Whereas its sheer dimension offers LIC a serious aggressive benefit, it might additionally show to be its Achilles heel. Firstly, such a big IPO concern dimension could make it a problem for the Indian market to totally subscribe. Whereas some articles examine the oversubscription values ​​of the largest IPO of 2021 with the scale of the LIC concern, the case right here could be very completely different. Firstly, with indicators of a giant grey market premium, HNIs are comfortable to avail IPO financing (6-7-day loans to HNIs), the place lending NBFCs provide many of the liquidity. As well as, ‘assured itemizing advantages’ are inclined to oversubscribe neck-high retail buyers. Some institutional members have additionally bought their stake on the day of itemizing to ebook income. However this unofficial premium could also be absent in LIC, due to its dimension. The Paytm IPO saga is kind of just like these situations, with a dimension of INR 18,300 crores and no itemizing day premium. It needed to scrap the underside of the barrel to satisfy the subscription of its concern (1.89 bar), solely to checklist at a reduction. Right here we’re speaking a few ~65,000 crore concern – roughly the entire fairness money market turnover that India sees in a day.

Two reverse instructions of progress and market share

There are additionally some enterprise crises. LIC has been constantly dropping its market share to non-public insurance coverage firms. By way of premium, LIC’s market share declined from 66.4% in FY19 to 64.1% in FY21. The image of improvement can be not vibrant. From FY16 to FY21, the general premium of personal gamers grew at a CAGR of 18%, whereas LIC remained sluggish by 9%. On condition that the Authorities of India will proceed to have a majority even after itemizing, it could need to take sure steps in step with its financial and coverage targets. As historical past reveals, these is probably not favorable enterprise practices for LIC.

LIC’s IPO is clearly one of many many first place winners within the listed monetary market of India. So you possibly can weigh in on its energy and like it, or detest on its weak point and hate it, however you possibly can’t ignore it!



The views expressed above are these of the creator.

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