instead of ₹50,000-₹70,000 crore expected earlier, the Government has signaled that it does not view the LIC disinvestment as a mere fund-raising exercise.
The listing of India’s largest State-owned insurer opens up its operations and financials to public scrutiny, making the IPO an important step forward in India’s financial reforms.
The governance reforms initiated preparatory to this IPO to transform LIC into a Board-managed corporate entity, bifurcate its shareholder and policyholder funds, and lay down a clear surplus distribution policy, which could benefit both policyholders and markets at large, by ensuring more transparent and commercially-driven decisions.
As a totally Government controlled body without an independent Board oversight, LIC was often criticized for making less-than-transparent investment decisions at its promoter’s behest. Incorporating private shareholders, including LIC employees and policyholders into its governance structure, is a welcome step toward inculcating the spirit of democracy in the process of development.
Even ordinary people in the remote rural hinterland of India who entrust their hard-earned savings to ensure their lives with the LIC can now become its equity partners.
The success of the IPO has dispelled doubts about the capacity of the Indian market to absorb a ₹21,000-crore offer. It has also demonstrated that serious long-term investors whether they are retail, domestic institutions, or foreign funds find the LIC offer hard to ignore.
With a ₹6 lakh-crore market cap and a 66 per cent market share, LIC remains a dominant force in India’s under-penetrated life insurance market.
Concerns that LIC due to its size cannot match the growth rates of smaller private players seem to have been addressed by the Government. The 10 per cent policyholder reservation and discounts for policyholders and retail investors, aim to translate the enormous goodwill that LIC enjoys among Indian households into IPO subscriptions.
Having set a low bar on expectations though, the Government needs to ensure that LIC delivers on financial performance and shareholder returns post-listing, so that long-term investors who put faith on the IPO in these turbulent times aren’t disappointed.
Being the largest life insurance company in India and the fifth-largest globally, LIC’s listing on bourses is set to change many things in the Indian capital market.
To start with, investor portfolios will change when LIC shares commence trading on stock exchanges. This is because seasoned investors cannot afford to ignore the life insurance market leader with over two-thirds of the market share. Even at a generic level, when portfolio structures are designed, investors always show a preference towards the market leader in a sector.
Another reason contributing to investor interest in LIC is the underserviced nature of the life insurance market in our country. Despite the fact that LIC writes millions of insurance policies, the insurance premium-to GDP ratio in India is at 3.7 per cent, well below the global average of 7.23 per cent. This means that most Indians have inadequate life insurance as compared to citizens of other countries.
Moreover, LIC’s listing has the potential to change the benchmark indices. It is possible that LIC could be included in the S&P BSE Sensex and Nifty50 very soon. This would mean that some other large-cap company will be replaced by LIC.
Once this happens, we may see a churn in the market as investor portfolios get adjusted to the largest insurer in the country. An important aspect of LIC’s listing is to do with the insurer’s disclosure about its portfolio. With assets worth Rs 39 trillion more than the entire mutual fund industry put together—LIC is the biggest investor in Government bonds and equity assets.
Post-listing, just like any other listed company, LIC will have to make quarterly disclosures on its financials every quarter. This will allow all market players to review the changes in LIC’s portfolio and take important cues.
The capital markets in India will get the much-needed push due to the LIC IPO. It has already triggered a surge in new Demat account openings following the insurer’s campaign encouraging existing policyholders to open Demat accounts.