As we look towards the most important budget of PM Narendra Modi’s second term, target of double digit growth rate is essential for generating sufficient jobs, quickly recovering from pandemic induced slowdown and achieving bigger goal of prosperity for all. One of the most important requirements for this is significant increase in the investment rate as measured by gross fixed capital formation (GFCF). In these COVID times, this increase has to be led from front by the Government in the form of public investment. Government savings have to move into positive territory. This need of sharp increase in investment-to-GDP ratio will require significantly higher resource mobilization efforts.
Even though government’s disinvestment plans for Air India, BPCL and Concor kept on getting pushed ahead due to COVID, for LIC, the recent appointments of Edelweiss Financial Services Limited and Deloitte as pre-IPO advisors, the process has started to pick up some speed. This is one of the most awaited IPOs in 2022. The LIC IPO is likely to cover more than a third of the government’s budgeted disinvestment target of ₹2.10 lakh crores this fiscal year.
With around 70% market share of Life Insurance business in the country, LIC is way ahead to any other of 23 players in the Industry. IRDA has reported significant increase in the premium collection by LIC which is nearing ₹1.8 lakh crores. Presently, government holds 95% stake in LIC whose total assets are worth ₹34 lakh crores. Regarding the IPO, since the DRHP (draft red herring prospectus) hasn’t been filed till now, the price band for the IPO is not known as yet. But the issue price is generally announced around a week before the shares are open for subscription by the public.
PM Modi has talked about wealth creation as the area of focus of sabka prayas and this IPO will help retail investors while bringing transparency in the management of LIC. As sale is of less than 10% stake, which allows control with the government itself, hence allaying any chances of adverse impact of IPO on existing stakeholders in general and especially all policyholders. Further, this will bolster the confidence of BFSI sector in post-covid world, which is essential for capital formation and credit flow in the country.
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