LIC IPO Comes During Volatile Market Conditions

The Initial Public Offering of LIC comes not at the very best of market conditions. In fact, the IPO is likely to come at a time when bond yields in the US are surging, which automatically reduces the appetite of Foreign Portfolio Investors.

Apart from this geo-political tensions on the global front between Russia and Ukraine has kept global markets on the tenterhook. Crude oil prices have surged to nearly $94 a barrel, which is not good news for India.

The IPO price would remain the key for LIC, which should see how much interest is there among investors, particularly the qualified institutional investors.

A lot of retail investors have already lost money in the IPOs of Paytm and those who were allotted shares of Policy Bazaar and were holding onto them are still making losses.

Details of the LIC IPO offering

According to the draft red herring prospectus, LIC's embedded value, which is a measures of the consolidated shareholders value in an insurance company, has been pegged at about Rs 5.4 lakh crore as of September 30, 2021, by international actuarial firm Milliman Advisors. Although the DRHP does not disclose the market valuation of LIC, as per industry standards it would about 3 times the embedded value or around Rs 16 lakh crore.

Last month, LIC reported a profit after tax of Rs 1,437 crore for the first half of the financial year 2021-22 as compared with Rs 6.14 crore in the year-ago period. Its new business premium growth rate stood at 554.1 per cent in the first half of 2021-22, compared with 394.76 per cent during the year-ago period.

There are currently 24 life insurance companies in India, with LIC being the sole public player. The size of the Indian life insurance industry was Rs 6.2 lakh crore on a total-premium basis in fiscal 2021, up from Rs 5.7 lakh crore in fiscal 2020. The government has appointed 10 merchant bankers, including Kotak Mahindra Capital, Goldman Sachs (India) Securities Pvt Ltd, Citigroup Global Markets India Pvt Ltd and Nomura Financial Advisory and Securities (India) Pvt Ltd, to manage the mega IPO of the country's largest insurer. The government is also mulling allowing foreign investors to pick up stake in LIC. As per Sebi rules, foreign portfolio investors (FPI) are permitted to buy shares in a public offer. FDI policy would have to be tweaked for FII/FPI investment in this IPO, as LIC is a corporation and not an insurance company.

With inputs from PTI