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Last Updated : Aug 09, 2019 09:43 AM IST | Source: Moneycontrol.com

'Hints of LIC's entry in the markets a positive step by the government'

LIC might plan to go for an IPO by selling only a small portion to the public and later may liquidate the government holdings in line with the divestment plan of the government of India.

Moneycontrol Contributor

Gaurav Garg

With the Government moving towards disinvestment in the public sector units (PSUs), many are looking forward to grab this opportunity in various industries. One of the proposed agendas of the Modi Government 2.0 is to do aggressive fund-raising by means of disinvestment with a target of Rs 1.05 lakh crore in the current fiscal year.

‘Insurance Industry Behemoth’, Life Insurance Corporation of India (LIC), which holds 74 percent of the market share in the month of June is thinking of coming up with an IPO as per the current talks in the government.


Former Finance Minister, Arun Jaitley, said that Life Insurance Corporation of India would perhaps be the country's most valuable company if it were listed on the stock exchanges as it has maintained its market leadership despite the constraints of functioning of state-run companies.

LIC is the largest investor in the nation's growth, with over Rs 4 lakh crore in investments in key sectors of the economy.

Insurance Regulatory Development Authority of India (IRDAI) is the regulatory body for all the insurance companies in India including LIC but apart from IRDAI, the company is also governed by the LIC Act.

Then there is a sovereign guarantee accorded to all LIC policy benefits under Section 37 of the Act. The government has guaranteed the sum assured with bonus in all policies, so any such plans would require the LIC Act to be amended first.

At a time when IPOs are hitting every few years, companies like LIC, which are over 60 years old give more confidence to investors. Companies like LIC have seen many business cycles and hence have more know-how and experience to mitigate new challenges.

The initial public offering (IPO) of state-owned New India Assurance Co. Ltd (NIA) was fully subscribed on the back of a $1 billion (approximately Rs 6,500 crore) bid by Life Insurance Corporation of India.

LIC might plan to go for an IPO by selling only a small portion to the public and later may liquidate the government holdings in line with the divestment plan of the government of India.

At present, the total AUM is Rs 31.11 lakh crore, which is a rise of 9.38 percent on a YoY basis. LIC has also made huge investments in debentures and bonds totalling over Rs 4.34 lakh crore.

LIC which is knowing for investing in various infrastructure projects in India, has agreed in-principle to offer Rs 1.25 trillion over the next five years to fund highway projects. As of now, there are a lot of questions for which clarity would come over the next few weeks.

Before it goes for an IPO, the government would have to consider the influence LIC will bring with itself. LIC has the potential to become the largest company in terms of market capitalisation. Even the slightest movements in the stock price for the company would create huge fluctuations for the price of the index. This would create a bias towards the company which may not reflect a true picture for the indices.

However, there is another view, which some believe that by listing LIC, the government will be able to bring in transparency and accountability as well as better governance in the functioning of LIC. The effects would only be known when the company actually gets listed. But even a thought in this direction is a big step by the government and any development on this front would be closely monitored.

(The author is Head of Research at CapitalVia Global Research Limited.)

Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
First Published on Aug 9, 2019 09:41 am