At Rs 20,557 crore, the Life Insurance Corporation’s (LIC) initial public offering (IPO), which opens for the retail investors today, is certainly the biggest till date in India. The initial IPO of Life Insurance Corporation (LIC) of India got off to a promising start, with ₹ 5,630 crore worth of shares designated for anchor investors being oversubscribed at the upper end of the pricing range.
It is also the first to enter the market with Rs 20,000-crore or more issue, which, at its listing on May 17, will command a market capital of Rs 6 lakh crore — possibly the highest for any stock listing. The LIC on Tuesday approached its policyholders through SMS and other media platforms to inform them about the share sale.
The LIC IPO opened for anchor investors on May 2. The anchor investors are high-profile institutional investors who are given shares before retail and other investors can buy them and must promise to keep them for a set amount of time after the company is listed. The IPO opened for other investors today and will close on May 9.
The IPO offers 22.13 crore shares for a 3.5% stake in the world’s 10th largest insurer by total assets. Of these, half the shares are reserved for qualified institutional buyers (QIB), 15% for non-institutional investors and 35% will be offered to retail investors. 15.81 lakh shares are reserved for employees while 2.21 crore shares are reserved for policy holders.
What is the share oversubscription?
When the number of shares on offer is less than the demand for the same during the IPO subscription process, the IPO is considered to be oversubscribed. This signifies that the company has received more applications from investors than the number of shares made available for the public.
When an IPO is oversubscribed, all the applications will not be approved, with the shares being allotted on a pro-rata basis. Here, the issued capital and subscribed capital are the same. For those applications that are refused, the money will be refunded.
An oversubscribed IPO suggests that investors are eager to purchase the company’s stock, resulting in a higher price and more shares being offered for sale. However, the demand must eventually reconcile with the security’s underlying company fundamentals. So, an oversubscription does not automatically indicate that the market will support the higher price for long.
Meanwhile, Mr. Hemang Jani, Equity Strategist & Senior Group VP, MOFSL, says that “Large IT companies have corrected 15%, 18%, 20%. Some of the prominent banks have corrected 15-20%. These largecap names which have much better numbers and cash flows provide a much better opportunity rather than scouting for a deep correction in Zomato or Paytm”.
“It would be difficult to gauge that but from a purely listing gain point of view and short to medium term perspective, given the attractive pricing and stronger numbers that LIC offers, there is an opportunity for everyone”, he further added.
What would be the effects of IPO on LIC?
An initial public offering is a proud moment for any company. It gets the capital needed, and the company’s equity shares are available for trading for the public. The purpose of the IPO is an offer to sell 5% of the shares by the government. No money would go to the LIC of India. That happens when the company does not need any money to fund growth. That makes LIC of India’s IPO an extraordinary situation.
When a company with a potential market cap of Rs140 lakh crore or USD 200 billion lists, benchmark indices cannot ignore the presence of such a large company. It would account for 4% of the market cap on stock exchanges and become the third-largest company by market value after Reliance Industries and TCS. It would become a part of the 30-share S&P BSE Sensex and NSE Nifty sooner than later. By virtue of being an index investor, you will indirectly own shares of LIC. To accommodate the LIC share, these indices would have to push out a bank or a non-banking financial services stock. That could mean shares of that stock would tumble. Financial services is already a dominant sector in these two indices. With LIC’s listing, the index management team would have to do a tight rope walk to represent the underlying stock market activity.
