Home Finance ResearchED: How LIC’s Market Listing Will Affect The Insurance Market

ResearchED: How LIC’s Market Listing Will Affect The Insurance Market

The recent influx of primary government-owned property headed for a more corporate entailed market has taken the Indian public by storm.

The said rise in private ownership has led to people from either side of the spectrum of privatisation skeptically. However, suffice to say, almost all investors are celebrating owing to most of them being listed as public companies.

In a similar vein, the Life Insurance Corporation of India has found itself staring at partial privatisation of the company as the Centre decided to offload 5% of its stakes in the company.

Owing to this, the 5% will, consequently, be listed as an IPO wherein, investors will be able to buy the said percentage of the company’s shares as Initial Public Offering. This development may seem fairly minor on the surface, however, it has the potential to change the entire dynamics of how the share market and the insurance market operates.

Road To IPO: How Did This Development Come To Pass?

On the 22nd of February, the centrally owned life insurance company, LIC, had begun the initialization of its venture into the initial public offering process. As elaborated by the Secretary of the Department of Investment and Public Asset Management (DIPAM), Tuhin Kanta Pandey, stakes worth 31.6 crore INR will be put up as IPO in the market. 

A number of laymen have questioned the real value of the government-owned company, while investors have already flocked at its doorsteps to get their piece of the pie. However, this makes it paramount to note what makes the company as valuable as it has been depicted to be.

To put matters into perspective, the Mumbai-based insurer has about 2,000 branches and about 286 million policies. This has, under recent valuation, amounted to 530 billion USD with possession of 64% of the insurance market share.

Moreover, the government has used it as a usual finance injector with investments made in 370 companies, holding majority stakes in 35 of them. 

One must think when going over these figures as to why would a fairly, money-minting centrally controlled company be needed to go towards the way of an IPO. In all honesty, they would be fair to think so since it is one of the few profit-making government-owned corporations ranking as the 10th most valued insurance company in the world. 

The Government of India for the past few years has been formulating its strategy of disinvestment as it has done for quite a few companies previously.

Rather than just aim for the loss-making companies, the government has decided that they have no business being in the corporate world. As said by the Prime Minister, Narendra Modi, the government has “no business to be in business.” He had initially further stated;

“When a government engages in business, it leads to losses. The government is bound by rules and the lack of courage to take bold commercial decisions. It is the government’s duty to support enterprises and businesses. But it is not essential that it should own and run enterprises.”

Thus, with the eventualization of the COVID-19 pandemic, the Centre had found the perfect time to waive its hands off a number of public-owned companies, Air India being at the forefront of them all.

According to government statements, they had introduced their quay of reducing disinvestment owing to the surmounting fiscal deficit that rose to 9.5% of the GDP. With the initial disinvestment revenue of 175,000 crore INR being scaled down to 78,000 crore INR, the journey of LIC has been fairly smooth.

However, to make the listing sound much more prospective for investors, the red herring prospectus initiated that the IPO listing had been made to “enhance our visibility and brand image as well as provide a public market for the equity shares in India”.


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How Will It Affect The Insurance And Stock Market?

It must be understood that the entirety of the company had had its foundations laid on the prospect of providing affordable insurance policies to each section of the Indian society, irrespective of financial status.

EAS Sarma, former Secretary of Economic Affairs, had described the IPO as “illegal, unconstitutional and against the interests of the people of India”.

These perfunctory keywords do sound fairly aggressive and unfounded, which they quite frankly are, however, having an insurance company made for a particular social cause become a publicly listed company brings about a ton of expectations. More often than not, these expectations arrive at the cost of the marginalized not getting their due. 

It is fair to debunk this theory as base conjecture, however, the IPO’s inclusion in the market has become a cause for concern for the private players in the insurance market. As elaborated by numerous financial analysts, historically it has been noted that the financially successful companies are the ones that list themselves from the very get-go.

However, in this instance, the scenario is wildly different as the more successful company is entering the market this late in the game. Vidya Bala, co-founder of Primelnvestor, a stocks and mutual funds research firm had elaborated upon this anomaly;

“The IPO will continue to drag on LIC’s competitors as investors are trimming their holdings in the three listed private life insurers to make room for the state-owned insurance player. Historically, market leaders are the first ones that list.

This is a rare moment when a large player is being listed very late. For any fund manager, having a player that owns over 60 per cent of the market share instead of individually owning those that have 10 per cent-11 per cent market share is a very natural aspiration.”

Vidya Bala, co-founder and head of R&D, of PrimeInvestor

Fair to state that the investors have hedged all of their bets on the biggest insurance company in India. Owing to the scale of the IPO, apart from it being India’s biggest, it has been dubbed as India’s Aramco moment.

Much like the Saudi Arabian corporation’s grand listing debut in the market, LIC has found its niche in the conglomerate of investors in India. 

Many investors have dubbed the development to have the potential to be revolutionary, not just for the share market but for the entirety of the insurance industry as well. However, it is yet to be seen how the entire show plays out and as stated by UBS Securities if it does indeed bring about “transparency in LIC’s operations.”


Disclaimer: This article has been fact-checked

Image Sources: Google Images

Sources: NDTV, Deccan Herald, News 18

Connect with the blogger: @kushan257

This post is tagged under: lic, life insurance corporation, insurance, insurance companies, ipo, initial public offering, lic ipo, lic listing, stock listing, public listing, stock market, share market, ubs securities, finance, financial security, insurance market, Narendra modi, government of India, ministry of finance, nirmala sitharaman

We do not hold any right, copyright over any of the images used, these have been taken from Google. In case of credits or removal, the owner may kindly mail us


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