LIC IPO: Will the reduced offer size help garner investor interest?

After a double-delay to launch Life Insurance Corporation’s (LIC’s) initial public offer (IPO), first due to Covid-19-led pandemic and later the Russia-Ukraine war, India’s largest insurance firm, is expected to open the much-awaited IPO from May 4.

While analysts remain mixed on how the government’s largest-ever IPO would perform on Dalal Street, they expect the issue to sail through as the markets have staged strong recovery from March lows.

“We expect high-net worth individuals (HNIs) and retail investors to dig into the IPO pie, depending on the valuation size and price band of the issue,” said Gaurang Shah, Vice-President at Geojit Financial Services.

Ajit Mishra, VP-Research at Religare Broking, meanwhile, says given the strong brand that LIC enjoys, coupled with its leadership position and high industry growth prospects, it would receive decent traction.

The board of LIC will meet on Tuesday to finalise the launch dates for the company’s IPO, and also consider the discount to be offered to policyholders, employees and retail shareholders.

On April 23, LIC’s board approved reducing the issue size of the LIC IPO to 3.5 per cent from 5 per cent proposed earlier. The centre would now fetch Rs 21,000 crore from the share sale, subject to regulatory approval, valuing LIC at Rs 6 trillion.

While the anchor book for the IPO will open on May 2, media reports suggest LIC has received Rs 13,000 crore worth of investment commitments from anchor investors – both global and domestic. However, a formal anchor book allotment is yet to start.

The IPO issue comes at the time when the US Federal Reserve will hold its 2-day monetary policy meeting from May 2 to May 3. However, analysts do not expect the outcome to dampen investor sentiment.

“Indian markets are aware of the rate hike from the last three months, hence we do not expect the market to react to the same news again,” Shah added.

Fresh wave of investors

The public issue is likely to reserve 35 per cent of its offer for retail investors, 10 per cent for policyholders and 5 per cent for LIC employees. As the state-run insurer campaign encourages existing policyholders to open demat accounts, analysts see a fresh wave of investors entering the market.

“As IPOs have lured new investors into the market – LIC shall be no exception. We expect the IPO to attract several new retail investors as well as institutional investors,” said Gaurav Dua, Head – Capital Market Strategy, Sharekhan by BNP Paribas.

Sector outlook

Life-insurance premiums were affected in FY21 due to pandemic. However, a CARE Ratings report showed that the first-year premium of life insurers reported a robust year-on-year growth of 37.3 per cent in March 2022, with LIC substantially outpacing its private peers for the second month in a row.

“LIC’s first-year premium showed robust growth of 50.6 per cent in March 2022 compared to 35.4 per cent in February 2022, while private insurers grew at 12.9 per cent in March 2022 compared to 5 per cent in February 2022,” the report said.

Analysts remain optimistic of the industry's medium-term outlook. "We expect the life insurance industry to continue to grow at around 12-14 per cent over a three to-five-year horizon. The growth drivers include pandemic induced demand for protection plans, younger demographic opting for pure protection plans driving insurance coverage, intense push to increase insurance coverage, especially in the rural populace, and rising awareness of retirement planning," CARE Ratings added in a report.

On the bourses, shares of HDFC Life, ICICI Prudential Life, ICICI Lombard, and Star Health have declined over 16 per cent, 6 per cent, 6 per cent, and 12 per cent, respectively this year. In comparison, the S&P BSE Sensex tanked over 3 per cent during the same period.