Hi, I plan to invest in the LIC IPO, so can you tell me two major advantages that you believe would set the LIC IPO apart?

As the largest IPO in Indian history is all set to open on 04th May, all eyes are focussed on the retail and institutional interest in the IPO. The IPO size will be Rs.21,008 crore so it remains to be seen how much of liquidity comes into the market amidst such tough conditions. I will tell you three major advantages that I see in the LIC IPO, and which should act as a major incentive for any investor like you looking to invest in the LIC IPO.

One thing you cannot dispute is that despite 22 years of private sector insurance presence, LIC continues to dominate life insurance with a substantial margin. That is what makes LIC different from the former PSU leaders in oil, telecom and banking. LIC still dominates over 71% of the life insurance business in policy terms and it is much bigger for group policies. That is a classic example of solid leadership position of LIC in the insurance sector.

If insurance is a business of selling and networks, then nobody does it better than LIC. To say the least, their distribution and marketing network is formidable. It brings to the table, 13.5 lakh agents and over 23 crore policies; giving it the much needed network effect. The network gets enhanced if you add up the LIC branches, its satellite offices, its network of bancassurance partners and also the scores of microfinance partners. That is the big moat.

Above all, don’t forge that LIC has substantially tweaked its valuations lower, making it attractive for a lot of investors. Government has done the right thing to create value in the long run and leave something on the table for IPO investors. That approach has worked well in the case of Maruti and the contrary approach had bombed in the case of National Insurance and GIC RE. At the current MCAP / Embedded value ratio of 1.1; the LIC IPO is not just cheaper than domestic private peers but also it is cheaper than global insurance peers.