NEW DELHI: The government may go slow on sale of any extra stake in Life Insurance Corporation (LIC) and wait for investors who participated in the state-run insurer’s initial public offer (IPO) to book a decent capital appreciation. It feels that an appropriately timed follow-on offer is crucial for keeping investor interests in the stock intact.
Once original IPO investors are rewarded by the market, the government will initiate the sale of at least another 1.5% stake in LIC to make the stock eligible to be part of index funds to attract a larger long-term investor pool, an official said.
“Many people who bought LIC shares in the last one year when prices were low, saw good appreciation by now. But the real (gain) will be when original investors in LIC make good returns on their investment,” the official said. If these investors become happy, they will come back again and again to hold the stock when fresh issues come to the market.
“Some of them if they want to exit, should also get an opportunity to exit at an honourable price,” the official added. During the intra-day trade, LIC share price touched Rs 950.1 (52 week high) on Tuesday, crossing the IPO issue price of Rs 949 for the first time after listing on May 17, 2022.
Since its listing on the stock exchanges, LIC stock moved down, falling as much as 44% to Rs 530 on March 29, 2023. The stock closed at Rs 876.30 on Tuesday on the BSE, down 6.38% from the previous closing price, due to market volatility. Tuesday’s closing price was down 7.6% from the IPO issue price of Rs 949.
The public float in LIC is just 3.5% while the government owns 96.5%. Despite LIC being a large-cap company with a market capitalization of Rs 5.54 trillion, it is not part of the benchmark indexes –S&P BSE Sensex or Nifty 50.
An index fund is a type of mutual fund with a portfolio constructed to match or track the components of a financial market index, such as the Sensex or Nifty 50. Index funds are considered ideal core portfolio holdings for retirement accounts as well as passive individual investors.
Inclusion in index funds, which track a particular set of companies, will create a larger pool of investor base for the LIC and make it easier for the government to dilute further stakes to meet the minimum public shareholding (MPS) norm of 25%. Index funds allocate funds to the constituent stocks proportionately according to their weight, reducing the market risk substantially for investors.
Given the volatility in the share price of LIC after listing in May 2022, the government recently gave a ten-year window for the insurance behemoth to meet the Minimum Public Shareholding (MPS) norm of 25%.
According to the market regulator Sebi norms, a company is required to have an MPS of 25% three years after listing. However, this regulation doesn’t strictly apply to state-run companies as the government has empowered itself to give relaxations to them.
The share price of LIC has improved in recent weeks partly due to the improved stock market sentiments. The LIC Board is also working on five to six key areas to prop up the share price of the insurer, including higher dividend payouts or bonus issues, deployment of modern technologies and roping in top IT talent laterally from the market to boost productivity and improve communication with investors.
Source: The Financial Express
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