Mumbai, August 26: The IPO of Life Insurance Corporation (LIC) through disinvestment mode will enable the central government to raise some funds, and mitigate some economic challenges hit by the coronavirus-induced pandemic, say experts.
The Centre’s announcement in the 20-21 budget session to make LIC a public company showed its seriousness to raise capital, by selling equity 10 per cent equity to raise funds between Rs 80,000 and Rs 90,000 crore.
The government as well as shareholders are bound to benefit from LIC’s IPO, which is the largest in the Indian capital market in terms of size and scale, say experts.
“Selling a small stake in a giant like LIC will allow the government to raise capital and shore up funds on its path to meet its revenue target,” Nirali Shah, senior research analyst, Samco Securities, said.
In the beginning of the calendar year, markets were trading volatile and deteriorated sharply with the COVID-induced pandemic, leading to deferment of several IPOs. Now the markets have bounced back from its lows, making it a perfect time for LIC to go public.
“This disinvestment process has to be expedited before the bullishness in the market,” said VK Vijayakumar, chief investment strategist, Geojit Financial Services, adding that the present rally in stock markets is global driven largely by the huge liquidity created by the central banks and historic low interest rates. The market is hot now. The government should strike the iron while it is hot.
“Presently the market is bullish and a large number of retail investors have entered the market. With four million new demat accounts opened in the last four months, equity cult has caught on. Since LIC is a great brand, there would be excellent demand for the offering,” he said.
Experts are of the view that the government is likely to go ahead with LIC’s IPO in the second-half of this fiscal year, which is in line with the announcement made by finance minister Nirmala Sitharaman in union budget 2020-2021.
LIC witnessed 69 per cent growth in premium led by a surge in the selling of term assurance policies, per data released by IRDAI in August 2020. It is one of the largest financial institutions, with assets worth close to Rs 31 lakh crore under management.
It has made large investments in key sectors of the economy to help the government monetise and allocate resources on infrastructure development as well as to fulfil the budgetary deficit.
Ajit Mishra, vice-president (Research) at Religare Broking, believes the much-awaited IPO of LIC would receive a favorable traction and attract more FII investments in the Indian market.
“Also, the demand for insurance products has increased recently. Hence, fund flow would remain healthy,” he said, adding that the pricing and the valuation at which the IPO is launched would play a crucial role in the ways it will benefit the investors.
With the IPO listing, LIC will be bound to follow Sebi’s regulations, and its disciplinary regulations.