Analysis and Insights on the LIC IPO: A Closer Look

Recently, the Life Insurance Corporation (LIC) has announced its Initial Public Offering (IPO), which has stirred a fair amount of debate. Various stakeholders, including analysts, mutual funds, and investors, have expressed their opinions on the prospects of this IPO. This article will delve into the key points of discussion, scrutinize the market performance, and provide valuable insights for potential investors.

Market Performance and Price

According to brokerage firms, the LIC IPO is being offered at a Price-to-Embedded-Value (P/EV) multiple of 1.1x, which is at the upper end of the price band. This is significantly lower compared to other large listed private life insurance companies, which trade at multiples of 2.5-4.3x as of September 2021 (EV). Despite this, the historical data shows that whenever such big IPOs have hit the market, they tend to wipe off investors’ wealth, making the LIC IPO somewhat risky in the short term.

To provide context, mutual funds poured over Rs 4000 crore into the anchor book. Lic has generated over Rs 5000 crore in the pre-subscription phase alone, indicating a massive interest from the market. The book was heavily subscribed, with foreign portfolio investors (FPIs), pension funds, corporations, and other insurers participating in the anchor investment. At Rs 21000 crore issue size, the LIC IPO is the largest India has seen so far.

Arguments Against the IPO

Despite the high subscription, there are several reasons why some experts believe the LIC IPO might not be the best investment at this moment. First and foremost, the company is listed as a Public Sector Undertaking (PSU), and it is priced slightly over what it is worth. Many investors feel that the pricing is not favorable, and it might not generate returns even in the short term.

Secondly, historical data reveals that such massive IPOs have often resulted in losses for investors. Accordingly, some experts predict that the listing day might not bring immediate returns to investors. A popular belief is that the company might delay listing the shares, giving investors another opportunity to scoop at a later date.

Arguments in Favor of the IPO

On the flip side, many financial advisors and research teams maintain a more optimistic view. Analysts at various brokerage houses, such as Geojit Financial Services, Anand Rathi Share and Stock Brokers, and Reliance Securities, have recommended "Subscribe" to the offer. These experts highlight LIC's stability, profitability, and market dominance.

Currently, LIC manages around Rs 40 lakh crore in assets and is the fifth-largest life insurer globally. It has a strong track record of financial performance and profitable growth. Moreover, LIC has always played a significant role in supporting the government, especially in times of financial distress. As of December 31, 2021, it covered 91% of all districts in India, with an impressive 1.33 million individual agents, 61.6% market share in terms of premiums, and a 61.4% market share in new business premiums.

Conclusion

In conclusion, the LIC IPO presents both opportunities and risks. While the company’s stability and market leadership make it a compelling prospect, the current pricing and historical data indicate that the market is wary. As a potential investor, you must weigh these factors carefully and decide whether to invest in the open market or wait for a more favorable opportunity.

For any IPO-related information, please visit the official website or consult your financial advisor.