LIC (Life Insurance Corporation of India) IPO is set to open next week after months if not years of waiting for the same. The issue is going to be the largest ever to hit Dalal Street with the government looking to raise Rs 21,000 crore, however, LIC may not gain entry to the much tracked MSCI, FTSE, Sensex, or the Nifty 50 index anytime soon. Analysts at Edelweiss Alternative & Quantitative Research said that the free-float market capitalisation of LIC would be the key dampener for early inclusion in MSCI Standard Index. LIC IPO will see a 3.5% stake dilution by the government of India.
Not likely to enter MSCI, FTSE, Sensex, Nifty
In a report, that came just before the details of LIC IPO were made publicly available, Edelweiss’ Abhilash Pagaria said that the limited dilution of stake in the insurer once listed will not immediately lead to an early inclusion in any of the widely tracked passive indices. “As per our understanding of methodology, hypothetically assuming 5% dilution of the government stake, at least Rs 10.7 lakh crore market cap as of the close of its first or second trading day, will pave way for its early inclusion,” Abhilash Pagaria, Head- Edelweiss Alternative & Quantitative Research said.
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With the details of the IPO now public, the dilution has been trimmed below the 5% that was earlier expected, making LIC’s entry into the global as well as domestic indices a low possibility affair. “FTSE Index inclusion doesn’t seem to happen before the Sep 22 review. Also, we don’t see stock entering Sensex and Nifty 50 Index in the near term as the criteria for those indices are more stringent,” Pagaria added.
Edelweiss had estimated a 5% stake dilution at Rs 6 lakh crore valuation for LIC. This would result in very low free-float market capitalization. With LIC now just going for a 3.5% dilution and considering the anchor lock-in of equity shares, the float will go down further.
LIC IPO opens next week
LIC IPO will open for investors next week on May 4. The issue is entirely an Offer For Sale (OFS) by the government of India and will not include any fresh issue. Being entirely an OFS, LIC will not get any receipts from the issue. Currently, the government of India owns 100% of LIC.
LIC’s valuation has been trimmed down to half of what was projected earlier in February when the insurer had filed draft IPO papers with SEBI. LIC is now looking to sell 221 million equity shares, instead of the 316 million it had planned earlier. Analysts believe the valuations have been trimmed after discussions with investment bankers and keeping in mind the large capital outflows from emerging markets, including India in the aftermath of the Russia-Ukraine war.