LIC IPO should get listed 5-10% above offer price: Nilesh Sathe

Shares of LIC should give a reasonable 10% annualised return on a 3 to 5 year horizon, said Nilesh Sathe, former Irdai member and former ED at LIC, while also adding that the shares will be less volatile and should perform better than other PSU Insurers, like SBI Life insurance, in the long run. In an attempt to calm investors, through ETBFSI, Sathe clears speculations around the IPO. LIC is likely to get listed on Tuesday, May 17. Here are the highlights.

  • Updated On May 16, 2022 at 07:46 AM IST
Read by: 19568 Industry Professionals
Read by 19568 Industry Professionals


Quite bullish on the initial public offering of India's largest insurer, Life Insurance Corporation (LIC), Nilesh Sathe, former IRDAI member and former Executive Director at LIC, said that, as per his own prudent estimate, LIC shares should get listed 5 to 10% above the offer price.

"LIC IPO has received stupendous response from each segment, be it retailers (1.99 times), Non-Institutional Investors (2.91 times), Qualified Institutional Buyers (2.91 times), Employees (4.40 times) or unprecedented response from Policyholders (6.12 times)," he said.

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In an attempt to calm investors who are worried about a discounted listing of LIC shares due to the plunging Grey Market Premium (GMP), down more than 100% in a week, Sathe said that the GMP might have fallen but will pick up before the listing.

As far as the lukewarm response from Foreign Institutional Investors (FIIs) is being feared, he added that the FIIs are shying away from the equity market at present, but they will start picking up shares once they gain market response to the LIC shares.

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"It should give a reasonable 10% annualised return on a 3 to 5 year horizon. Its performance should be better than SBI life and the stock will be less volatile," he said.

Market speculations

According to reports, accumulated losses of Rs 6,028 crore, losing market share, weak digital presence and the perception that not all decisions taken by LIC are in sync with shareholder interests are also some of the speculations that analysts are taking into regard and some even believe that the response around the IPO has been poor.

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However, Sathe firmly believes that the analysts do their job but the market doesn’t move on their calculations, but on sentiments.

Also Read: LIC IPO: Date, Price, Discount eligibility for policyholders. Here are the top 10 announcements

"Many analysts were earlier saying that the earning per share (EPS) of LIC is low, value of new business (VONB) margins are low, Multiple of 1.12 is too high in comparison with Chinese and Canadian Insurance companies etc, but the response to the IPO has muted them as the investors have trust in LIC," he said.

There are at least 50 Lakh first time entrants in the equity market who have subscribed to LIC IPO, he said while adding that, if their reasonable expectations are met, the depth of market will increase and the analysts will bite the dust once more.

"LIC is a robust financial institution with deep pockets. LIC’s asset under management (AUM) is probably more than that of the Mutual Funds industry in India. IPO will bring in more transparency and governance, which will further help the organisation to grow further," he added.

Global Crisis, Inflationary pressure and rate hike

"I don’t subscribe to the pessimistic view of the analysts. Geopolitical crises always impact the market, but it bounces back once the situation improves. Not many FIIs have subscribed to the IPO, since they are not keen on investing in India, it will certainly impact the demand to some extent and will witness a muted rise in price," he said.

On the rate hike part, Sathe clarified that nobody takes out a loan to subscribe to an IPO and if RBI increases rates due to which interest on loan goes up, it will have no effect on subscribers. "Inflation pressure is there but liquidity is also there. It will certainly offer something on table for the first time retail investors," he added.

Focus areas post listing

According to Sathe, LIC should focus on the value of new business (VONB) margins, products which generate better margins, and channels which are less costly. "Costs should come down and investment returns should go up. If it’s able to maintain policyholders' return by way of bonus, half the battle is won," he said.

( The views expressed in this story are personal.)
  • Published On May 16, 2022 at 07:39 AM IST

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