LIC’s mega IPO value can secure stock’s entry into Nifty50 & other indices: UBS

“LIC would be the third-largest stock in India by market cap, and the 32nd-largest by free float, assuring an entry into mainstream indices, e.g., Nifty-50,” asserted a report by UBS Global Research

The highly-anticipated public offer by the Life Insurance Corporation Of India (LIC) by which the government could generate ₹65,000 crore- ₹75,000 crore by selling a 5% stake, will build a large enough free float for the stock to be incorporated in mainstream indices such as Nifty50, according to UBS Global Research.

“LIC would be the third-largest stock in India by market cap, and the 32nd-largest by free float, assuring an entry into mainstream indices, e.g., Nifty-50,” asserted a report by UBS Global Research dated 15th February. The large share sale will assess the market longing at a time when the stock indices are unstable due to the Ukraine crisis, high crude prices, high US inflation and anticipated Fed rate hikes and so on.

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However, if it goes through, the listing may garner sharp valuations, believe experts. Amongst factors that continue to be favourable and will attract large investor interest contain the fact that LIC garners a large share of household savings. UBS data indicates that LIC gets lead over SBI’s deposits — the successive biggest destination for household savings in India.

LIC is the biggest and oldest life insurer in India and dominates with the bulk of the market share. The firm is also seeing increased competition from private insurers, who are also earning market share thereby presenting strong competition for LIC. However, amongst the factors favourable for LIC however the fact that LIC has over 50% share of the trade agent pool and LIC agents have the highest productivity indicates UBS data.

Analysts at Jefferies India Pvt Ltd in their report dated 16 February announced that “LIC accounts for 60% plus of life insurance fresh premiums and 40% of retail APE (annual premium equivalent), run mostly by its industry-leading agency force of 1.34 million and it moreover has 72 Banca partnerships.”  A bancassurance partnership is an agreement between a bank and an insurance firm for the sale of policies.

Analysts at Haitong Securities asserted that LIC’s true P&L Profit Potential can be 10x of Its Reported Figure. They asserted that the LIC’s noted a Net profit of Rs2900 Crore in FY21 despite organizing a very large AUM of Rs35 Lakh crore as of March’21. In their viewpoint, this reported net profit is highly understated and does not show the true earning capability of LIC.