InvestorQ : Do you see any concerns about investing in the LIC IPO?
ishika Banerjee made post

Do you see any concerns about investing in the LIC IPO?

10 months ago

No IPO or investing is going to be a simple road to riches. As much as there are advantages to the LIC IPO. In his 1990 book “Who says Elephants Can’t Dance”, Lou Gerstner had spoken about IBM saying that large companies could be fleet-footed. In the case of LIC also, it has proved that it can dance. However, there are still going to be some concerns that would arise from size and legacy. Here is what investors must be cautious about.

· Even though the valuations of LIC have been toned down, you must remember that at Rs.6 trillion it is still among the 10 most valuable companies in India. That makes future growth slightly slower at such valuations.

· As a result, LIC will not only be about hard sell to investors, but it is also going to raise questions about future value creation. Normally, higher the market, the law of large numbers tends to work against them.

· LIC has to get used to performance appraisal every quarter. Now, markets will not talk about its history or its leadership any longer. It will be all about how well they deliver the goods quarter after quarter. LIC has to now chart out a plan on how to convince the markets that it is maintain and building on its life insurance leadership.

· Government control will continue to be there since the government still holds 96.5% of the LIC equity and plans to continue to hold 80% of the equity in the future too. That would be an overhang on the stock value.

· In a sense, the LIC is a holding company for a variety of businesses so the holding company discount will be a challenge for LIC. This could be an overhang on the valuations of LIC post listing.

· Lastly, the problems in its debt portfolio may have been provided for, but it is yet to be resolved. That is something markets are likely to be cautious about.