LIC IPO Opens on Wednesday: Should First-Time Investors Subscribe to the IPO?

Life Insurance Corporation of India’s (LIC) initial public offering (IPO) is all set to be opened for subscription on May 4. The government plans to raise Rs 20,557 crore through the issue by diluting 3.5 per cent stake in the state-run insurance behemoth. It is expected that there will be a lot of investors, who don’t have prior experience of parking money in an IPO, will be taking part in LIC’s initial share sale. They will look to participate in the subscription process perhaps for the first time.

The relentless rally in stocks since the outbreak of the pandemic has lured younger and tech-savvy cohorts. Meanwhile, growth in demat accounts is poised for another big leap with the much-awaited Life Insurance Corp. of India’s (LIC’s) initial public offering (IPO) this week.

May is likely to be a record month for demat account openings, said Varun Sridhar, CEO of Paytm Money. “It (LIC IPO) is a milestone event for Indian capital markets,” he said.

LIC, clearly, is no ordinary company going to the stock markets to raise some money. Formed by an act of Parliament by merging 245 private insurance companies in 1956, it is the fifth-largest insurer in the world in terms of gross premium. The company has more than one lakh employees, nearly 5,000 offices and about 14 lakh agents. It manages assets worth Rs38 lakh crore, which is a whopping 15 times more than those managed by SBI Life, the second biggest insurance company in India.

The government wants the policyholders to chip in by buying into their insurer and has set aside 10 per cent of the total equity shares on offer exclusively for policyholders and employees, at a discount. LIC had gone on an overdrive of advertisements and public campaigns, calling on policyholders to update their PAN number and become eligible to apply for this 10 per cent, and pushing LIC agents to get the message across.

To woo the younger first time investors, LIC has been launched digital campaigns on social media. Religare Broking, for instance, launched the Pre-Apply LIC IPO app. “To this young generation, LIC may not appeal as a risk partner. But when it comes to investing, it definitely will,” said Ajit Misra, vice-president & senior technical analyst with Religare Broking.

Should First Time Investors Subscribe the LIC IPO?

A successful listing outweighs the potential risks. And ‘right-sizing’ the issue was a good move. The valuation was “fair and attractive”, said Tuhin Kanta Pandey, secretary, Department of Investment and Public Asset Management. “We want to champion LIC as a long-term value creator in the equity markets. The IPO is the first step of long-term value creation for LIC shareholders.”

B. Gopkumar, MD & CEO, Axis Securities said, “We believe first-time investors should apply to the issue as it allows the applicant to invest in a market leader with a long growth runway. Though there is skepticism around first-time investing, we believe investors would be assured by the long legacy and the solid brand value and recall that LIC enjoys. Applying to the issue allows first-time investors to directly own a stake in a strong brand across ‘Bharat.’ Additionally, the expectation of a discount for retail and policyholders, enabling marginally higher returns, could push first-time investors towards the issue.” He also cautioned that while near-term market volatility is likely to weigh on the stock performance, we remain positive from the long-term perspective.

Disclaimer:Disclaimer: The views and investment tips by experts in this report are their own and not those of the website or its management. Users are advised to check with certified experts before taking any investment decisions.

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