LIC’s IPO will come next month. The issue could be between Rs 60,000 to Rs 90,000 crore. This will be the biggest IPO in the country. Earlier, Paytm had introduced the country’s biggest IPO of Rs 18,000 crore. After the listing, LIC will join the club of the country’s largest companies. Reliance Industries is currently the largest listed company in the country on the basis of market capitalization. TCS is on the second spot.
There is a lot of commotion about LIC’s IPO. This issue is being discussed day and night in the media. On the other hand, LIC itself is giving a lot of advertisements for it in every media including newspapers. It is telling its policyholders important things about this issue. She is also telling what they have to do to invest in this issue. Many big issues have failed to meet the expectations of the investors. Paytm’s IPO is an example of this. After the listing, the share price of Paytm had fallen to almost half. Therefore, before investing in the issue of LIC, you should think carefully. Let us know some things about LIC, which can help you in deciding to invest in IPO.
Government control over LIC
The government’s control over LIC will continue even after the IPO. Many a times LIC has to come forward to save the IPO or issue of government companies from failure. Its large cash reserve has also been used for financial help of public sector banks. For the privatization of IDBI, the government had to take the help of LIC. If the government continues such use of LIC, then it will have a bad effect on the interest of the shareholders.
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decrease in market share
Before the year 2000, LIC was the king in the insurance market. LIC’s market share has been steadily declining since the doors of the insurance sector opened for private companies in 2000. It currently has a market share of around 66 per cent. The reason for this is that LIC is getting tough competition from private companies. Big private companies like SBI Life, ICICI Pru and HDFC Life make a lot of use of technology in providing service to the customers. LIC is far behind in this matter. LIC’s insurance is also much more expensive than private companies. In such a situation, the market share of LIC may decrease further in the coming time.
Too much reliance on agents
LIC depends heavily on agents for new business. At present, there are more than 12 lakh agents of LIC across the country. About 94 per cent of the company’s new premium comes through agents. Agents’ commission has come down significantly in the last few years. IRDA has made the rules related to commission strict in the interest of the customers. As the commission comes down, LIC’s interest in selling the policy may decrease. This will have a direct impact on the new business of LIC. Agents also do misselling in the greed of commission. Many such policies get closed shortly after opening.
Decrease in profit of policyholders
LIC has changed its surplus distribution rule for the success of IPO. Last year, it split the Consolidated Life Fund into two parts. LIC’s profit is kept in this fund. Now a part of it has been kept for the policyholders. The second is earmarked for a non-participatory shareholder. Earlier 95 per cent of this fund was distributed among the policyholders. The rest went to the shareholders. Now the entire non-participatory fund will go to the shareholders. This will reduce the surplus accrued to the participating policyholders. This will reduce the attractiveness of LIC among new customers.
What you should do?
Given the brand value of LIC, there is no doubt about the success of its IPO. This IPO can also create a record in case of oversubscription. The reason for this is that LIC has a reach to every nook and corner of the country. The way the company is wooing its policyholders to invest in the issue, it can lead to record bidding in this IPO. But, the biggest thing is what price band LIC decides. If it sets the price band higher, then obviously there won’t be much left for investors. Yes, those investing in it for listing gains can get benefits. Therefore, only after the announcement of the price band, it will be known how the issue will be for investors in the long run.
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