LIC IPO | LIC unlikely to be included in FTSE, Sensex, Nifty in near term, predicts Edelweiss Alternative study

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Edelweiss Alternative Research expects that the Life Insurance Corp of India public issue will not get space in the benchmark FTSE, Sensex and Nifty indices in the near term.

It said there is medium to higher probability for the stock to get a fast entry in the MSCI Index.

"We believe that FTSE Index inclusion shouldn’t happen before the September 2022 review. Also, we don’t see stocks entering Sensex and Nifty 50 Index in the near term as criteria for those indices are more stringent," said an Edelweiss Alternative Research report.

The brokerage house estimated foreign inflows of $280 million to $500 million into the stock, depending upon the final listing.

The  government will sell 5 percent stake or around 316 million shares in the public issue. According to news reports, the lower-end market cap comes at Rs 10.7 trillion and its free-float market cap will be Rs53,500 crore.

Best understanding the Edelweiss Alternative Research study, the issue’s free float considered by index providers won’t be 5 percent but approximately 3.5 percent, which is calculated after excluding the lock-in shares. This derives its free float market capital at Rs 37,100 or $4.98 billion. This is considering the stock lists at least at the total market cap of Rs 10.7 trillion.

"Despite being a lower float name, there is a medium-to-high probability of the stock getting a fast entry into the MSCI Index. As in the case of bigger issuances, index providers do not compulsorily require the Minimum Length of Trading Requirement or Foreign Inclusion Factor (FIF) of 0.15," the report noted.

However, the brokerage firm says that if the final listing M-cap comes below Rs 10.70 trillion, then it will make the inclusion difficult. Also Interim market size segment cut off will be an important level to watch out for, it said.

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.