Will LIC shares get fast entry in Sensex, Nifty, other indices after listing?


Life Insurance Corporation of India (LIC) has filed a draft red herring prospectus (DRHP) and has commenced formal roadshows in the country’s largest public issue to date. The issue is expected to commence in mid-March and LIC shares may get listed in the same month. As per the offer document, government will sell 5% in the public issue and around 316 million shares are to be sold in total.

“Even if we safely consider lower end of the market capitalisation suggested by the media reports, which comes to 10.7 lakh crore then its free float market cap will be around 53,500 crore,” said a note by Edelweiss Alternate Research.

As per Edelweiss Alternative Research, the issue’s free float considered by Index providers won’t be 5% but approximately 3.5% which is calculated after excluding the lock in shares. 

“Despite being a lower float name, there is a medium to high probability of stock getting fast entry in the MSCI Index. As in the case of bigger issuances, Index provider do not compulsorily require Minimum Length of Trading Requirement or Foreign Inclusion Factor (FIF) of 0.15,” the brokerage stated.

However, the most important aspect to be kept on radar will be the issue size and the final listing market cap as anything below 10.7 lakh crore valuation at listing can make the inclusion difficult. Also, interim market size segment cut off will be an important level to watch out for, Edelweiss added. Therefore, hypothetical inflow could be $280-500 million depending upon the final listing.

IPOs which are significant in size and meet all the MSCI inclusion criteria, an early inclusion, outside of the Index Reviews, may be considered for inclusion in the standard index. 

If the decision is made to include an IPO early, the inclusion is effective after the close of the security’s tenth day of trading. However, in certain cases, another date may be chosen for the inclusion to reduce turnover, for example, where the normal inclusion date is close to the effective date of the next index review.

“We believe that FTSE Index inclusion shouldn’t happen before the Sep 22 review. Also, we don’t see stock entering Sensex and Nifty 50 Index in the near term as criteria’s for those indices are more stringent,” Edelweiss added.


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