Vijay Kumar Gaba

10% of the shares offered for sale are reserved for the policyholders of LIC; and 0.7% shares on offer are reserved for employees of LIC. 31.25% of the offer is reserved for household (retail) investors. Applicants from these categories will get a discount of Rs45 (Rs. 60 for policyholders) on the actual offer price. For all these categories the maximum application is restricted to a maximum of Rs2 lac; implying 230 odd shares at lower price band after discount.

LIC is an important national institution. In fact till the year 2000, it was the only life insurer in the country. Even after 22 years of the entry of private players in the business, LIC still enjoys over 60% market share in the life insurance business. On the basis of gross premium underwritten, LIC is the fifth largest life insurer in the world. Over 1.3million individuals work as agent for LIC, making it one of the largest employment providers in the country. LIC manages over Rs40trn in financial assets, which is more than the combined AUM of the entire asset management industry of India. LIC owns (on the behalf of its stakeholders) about 4% of NSE market capitalization. Besides SBI, LIC is perhaps the only truly pan India financial services brand. In fact LIC is used as a generic term for life insurance in the country. No surprise that LIC has been widely recognized as one of the most trusted Indian brands.

Considering the magnitude of the proposition, the decision to invest in LIC looks pretty simple and straightforward. Numerous reports have been published highlighting the large size, financial details, relatively cheaper valuations, and growth prospects of the LIC. I would not like to delve into these details. In my view, the LIC OFS needs to be evaluated from the following three viewpoints:

1.    Life Insurance Corporation is a statutory corporation established under the Life Insurance Corporation Act, 1956. Besides the nationalized banks, it will be the first non-company to be listed on Indian stock exchanges. The financial market regulators RBI and SEBI have limited jurisdiction over LIC. It is also outside the purview of registrar of companies and NCLT. The affairs of LIC may not be as transparent as other financial services companies. Besides, the accounting methods followed by LIC may or may not be fully compliant with the generally accepted accounting principles (GAAPs).

2.    Like all other public sector enterprises, LIC may also be subject to government intervention in routine affairs like appointment of key managerial personnel, investments, introduction and/or withdrawal of products, pricing of products, etc.

3.    Since 2000, when the private insurers were first allowed in the country, LIC has been consistently losing market share. With the popularity of digital sales channels and expansion of bank branch networks of SBI, HDFC, ICICI, it is likely that this trend may continue for many more years.

I would therefore recount my experiences of investment in Coal India (Coal mining monopoly), ONGC (Oil & Gas exploration and production monopoly) and NTPC (Power generation monopoly) at the time of listing; and also UTI (asset management monopoly) which went bankrupt due to government invention in investments process and pricing of products.

I shall not get influenced by the “cheaper valuation offered” argument; because LIC deserves to be valued cheaply than professionally managed, well regulated & transparent insurers; just like public sector enterprises (including banks).

I will not regret if LIC gets listed at a significant premium to the OFS price, since many institutional investors will be compelled to include it in their portfolios due to sheer size of the corporation and likelihood of inclusion in benchmark indices.