Whether you are a first-time market entrant or an experienced investor, the news about the government’s intent to sell a 10% stake in state-owned insurance behemoth – Life Insurance Corporation of India, must have roused your attention. The IPO is likely to hit the market by March this year.
Should you apply for the IPO?
Should you add LIC to your portfolio? Let us see.
LIC (Life Insurance Corporation of India)
LIC has been one of the most trusted brands in India for decades. Even after the entry of private players and international names in the insurance market, LIC remains a coveted name synonymous with life insurance and trust amongst Indians.
You must have witnessed your parents faithfully paying LIC premiums to a familiar LIC agent and receiving cheques and payments in later years. The brand recall and faith are still unshakable in LIC as a stable public sector enterprise where a common man’s money is secure.
Read more: LIC Term Insurance Premium Calculator
In spite of stiff competition, LIC maintains its market leadership with a 65% share of all new policies sold. In rural India, LIC still holds a giant 71% market share. India is a large under-insured market with huge potential for insurance penetration and bodes well for LIC as the largest player.
Large Agent Network
LIC has over 1.35 million agents in rural areas. It takes time, training, and resources to build a robust agent network, especially in smaller towns and villages where reach is difficult.
LIC has created the agent network for years and relies on agent relationships for new sales and more importantly, renewals. LIC has a sharp competitive advantage over other players in terms of reach and manpower.
You must have seen ads of digital Insurance aggregator platforms on TV of late. LIC too is fast embracing technology and digitization in line with the internet economy and Digital India. Recently, LIC has invited bids from tech companies for automation solutions in sales and other processes.
Digitization will further empower the large workforce in selling policies faster and better. It will also help investors get better services and access to new products online.
While other insurance players focus on the urban, young population, LIC is well-positioned to tap a largely underserved market with internet and tech-based solutions.
Domestic Institutional Investor
You must have read the news that LIC invests heavily in the market every time there is a large sell-off or adverse event. By virtue of being the largest insurer in the country, LIC is also a large domestic institutional investor. During market upheavals, and times when FPIs & FIIs exit, LIC steps in as a net buyer and balances the market equation.
LIC’s net AUM in the stock market as of March ’21 was Rs 36.71 crore as compared to Rs 31.42 crore total AUM for mutual funds. LIC holds shares in many blue-chip stocks in every sector in India. For example, Rs 34,000 crore in Infosys, 30,000 crore in SBI, Rs 23,000 crore in HDFC Bank, Rs 20,000 crore in HUL.
LIC holds a 49% stake in IDBI Bank, 5% stake in Reliance India Limited, 4% in TCS, 14% in L&T, and 12% in Oil India Limited.
LIC also pumps in large funds in public sector companies. In the past, LIC has rescued companies by infusing funds at critical junctures, for example, LIC bought a 49% stake in IDBI and saved it from collapse.
If you are a savvy investor conversant with stock investments and online trading, LIC IPO will be a good investment opportunity to participate in India’s largest Insurer’s growth story, a robust PSU, and the largest domestic investor in the stock market.
Read more: LIC Single Premium Endowment Plan