Can LIC IPO’s policyholder category reboot the way retail investors perceive IPOs?

By –  Arijit Malakar, Head of Retail Equity Research, Ashika Group

Among one of the most-awaited initial public offerings (IPO), Life Insurance Corporation of India (LIC) is creating murmurs and anticipation in the investor community. Since announcing plans to dilute 5% of its stake, India’s largest life insurer has also introduced some trendsetting directives. Of the total portion of disinvestment, around 35% of the initial public offering is reserved for retail investors. In a bid to amplify retail participation, the state-owned company is making strides in the equity investment ecosystem.

To give retail investors a boost, LIC has set aside approximately 10% of the total shares for their policyholders. This comes as a trailblazing move by the company, which is 100% owned by the government as of now. With over 63.25 shares owned by the state, around 31.62 crore shares will be open to the public. Another encouraging factor for the potential investors is their plan to provide policyholder discounts while allotting shares.

Positive experience when investing in equity

Over the past few months, participation in IPOs has considerably increased. However, the multiple recent instances of oversubscription have left several retail investors without even one allotment. LIC has set aside around one-tenth of the total shares for its policyholders to encourage retail investments.The recent data shows that the insurance behemoth has around 29 crore policyholders and harnesses a 74.6% market share in individual policies. With a new category, ‘Policyholder Reservation Portion’, people who’ve had long associations with the company as policyholders will have access to an additional piece of the pie in the IPO.

Having a myriad of policies since the last 65 years, the eligibility for this special policyholder category varies. The directives say that only the current Indian policyholders with a Demat account and an updated PAN number until February 2022 can bid under the reserved category. Besides this, the proposers for a policy of a minor can also access the reserved quota set aside for policyholders. With an allocation limit of up to Rs. 2 lakh, this novel category will drive up investor participation and is speculated to break all the market records.

On the other hand, the policyholders have the benefit of selling their equity shares as and when they want. A no lock-in period can attract even more retail participants, especially novice equity investors.

A starting point for new IPO trends

While the markets are witnessing multi-fold retail investments, the IPO for LIC will potentially thrust forward a new segment of investors. The new category for policyholders has considerably broadened the scope of share allotment. As India’s largest insurer, many policyholders are across the country. Slated for launch by the fourth quarter of FY 2021-2022, the popularity of LIC will attract more policyholders as first-time investors. As things stand, rebated issue size and reservation will further intrigue policyholders to harness a share in the largest public sector undertaking (PSU) insurer. It could pave the way for new regulations in the IPO rules, favoring even more retail participation.

Another critical factor is the transition in the bidding scenario under LIC IPO. According to the recent reports, around 1.58 crore shares are reserved for employees, 3.16 crore shares for policyholders, and 9.41 crore shares for the retail investor segment. An individual application for all three categories, i.e., policyholder, employee, and a retail portion, will be valid. It opens new avenues allowing retail investors to make multiple bids.

In a nutshell, the government’s decision to set a separate category in the IPO for LIC’s policyholders is making a statement in the equity market. Giving policyholders a reserved stake can indeed be equated to encouraging more retail participation. This avant-garde move could be the first step in revolutionising India’s equity culture, giving retail investors a priority and leverage over institutional investors.