LIC’s mega IPO size to ensure stock’s entry into Nifty50, other indices: UBS


Mumbai: The much-awaited public offer by the Life Insurance Corporation Of India (LIC) through which the government could raise 65,000 crore- 75,000 crore by selling a 5% stake, will create a large enough free float for the stock to be included in mainstream indices such as Nifty50, according to UBS Global Research.

“LIC would be the third-largest stock in India by market cap, and the 32nd-largest by free float, ensuring an entry into mainstream indices, e.g., Nifty-50,” said a report by UBS Global Research dated 15th February.

The large share sale will test the market appetite at a time when the stock indices are volatile due to the Ukraine crisis, high crude prices, high US inflation and expected Fed rate hikes and so on.

Nevertheless, if it goes through, the listing may garner strong valuations, feel experts.

Amongst factors that remain favourable and will draw large investor interest include the fact that LIC garners a large share of household savings. UBS data suggests that LIC maintains lead over SBI’s deposits — the next largest destination for household savings in India.

LIC is the largest and oldest life insurer in India and dominates with the majority of the market share. The company is also seeing heightened competition from private insurers, who are also gaining market share thereby posing strong competition for LIC. However, amongst the factors favourable for LIC nevertheless are that LIC has over 50% share of the industry agent pool and LIC agents have the highest productivity suggests UBS data.

Analysts at Jefferies India Pvt Ltd in their report dated 16 February said that “LIC accounts for 60% plus of life insurance new premiums and 40% of retail APE (annual premium equivalent), driven primarily by its industry-leading agency force of 1.34 million and it also has 72 banca partnerships”. A bancassurance partnership is an arrangement between a bank and an insurance company for the sale of policies,

Further, the strong earnings prospects are also not being adequately captured, feel analysts.

Analysts at Haitong Securities said that LIC’s true P&L Profit Potential can be 10x of Its Reported Figure. They argued that the LIC’s reported a Net profit of Rs2900 Crore in FY21 despite managing a very large AUM of Rs35 Lakh crore as of March’21. In their opinion, this reported net profit is highly understated and does not capture the true earning potential of LIC.

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