You might have just got your salary a few hours ago and now that we are in May, you might be wondering where to invest in this new financial year.. Maybe the quantum of tax you paid was a tad higher than what you expected. So, maybe your next investment should make you more money to compensate for the tax you paid. Can LIC be that first BIG golden investment of the year that will make you money? Or should you ignore it right now?
The government initially announced that the LIC IPO would be a 60,000 crore IPO. Also, let's not forget the government's real reason to be enthusiastic for this particular IPO: A stake sale that would help bring more dollars and pounds into India and would help the government reach its annual disinvestment targets.
The government has pulled all strings to ensure that EVERYBODY under the roof applies for the LIC IPO to make it a big, grand success. It's India's largest IPO after all, even if the IPO size is now changed to Rs 21,500 crore. Thoda taam jhaam to banta hai.
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But before you decide if you should invest your money in the LIC IPO, here are a few things you should know:
1. The government has a disinvestment target (paisa banao target) of about 65,000 crore this year. It aims to sell its stake in LIC and with this IPO, it aims to raise about Rs 20,557 crore. Thus, the government will make about 30% of its target from this IPO, which is a biiiigg chunk. Initially however, the government had expected to raise about Rs 60,000 crore from the LIC IPO in January 2022.
The slash in IPO size (from 60,000 crore to 20,500 crore) and a reduction in valuation from 12,000 crore to 6,000 crore has reduced the price per share, making the shares cheaper than expected. (Even if you don't invest in it, read this to show off your knowledge when bade log talk about it :))
2. The government has held 100% control on LIC all this while. With this IPO, it will give a chhotu sa 3.5% stake (22.13 crore shares) to the public, thus changing its stake to 96.5% post IPO. Initially, the government had planned to sell about 5% of its stake in January 2022. But due to dicey market conditions and the Russia-Ukraine war, the government has offered lesser shares for sale. This increases its chances of enjoying a bumper IPO listing. Also, if the government wants to raise more money later on, the option of selling more stakes via multiple Follow On Public Offers (FPOs) is always open.
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3. If you or your parents hold an LIC policy, it is advantageous to apply for the IPO since there is a special 10% reservation for policy holders. If you are an LIC employee (or know someone who works in LIC), ask them to apply too. They get a separate 0.7% quota in the IPO.
4. What's the price? LIC has fixed a price range of Rs 902 to 949 per share. This means that LIC would like to get listed on the stock market at this price. But since this is an IPO, you (the applicant) can choose what price to pay per share, provided it's in the price range of Rs 902-949. So, you can pay Rs 902 or Rs 909 or Rs 930 or Rs 949 per share. You get to decide.
5. Did you know that you have to buy shares in lots when you apply for an IPO? Well, you cannot just apply for 1 share.
All shares in an IPO are sold in lots and you have to apply for lots instead of individual shares. Now, 1 lot of LIC is equal to 15 shares. For the LIC IPO, you can apply for a minimum of 1 lot and a maximum of 14 lots. Meaning you have to buy atleast 15 shares and at max, you can buy 210 shares.
6. How much will you have to spend? Considering you pay Rs 949 per share, the minimum amount you will need to apply for LIC IPO is Rs 14,235 (Rs 949 x 15) whereas the maximum investment limit is capped at about Rs 1,99,290 [( Rs 949 x 15) x 14].
7. Koi discount hai kya? Yes. LIC policy holders get a discount of Rs 60 per share, and LIC employees get a Rs 45 discount per share.
8. Now if you apply, will you get an allocation for sure?
Once you apply for the shares and pay for it between May 4 and May 9, 2022 (and pray to your favourite gods to receive an allotment), LIC will finalise the allotment by May 12. If you receive an allotment (which we hope you do), you will receive a confirmation of allotment. Else, you will get your money refunded on May 12 itself. Your demat account will be creditted with LIC shares by May 16. When the company gets listed on May 17, you can start trading on the BSE and NSE.
On May 17, the price of the LIC shares is expected to rise since public sentiment is positive and the price band is comparatively lower than what was expected. It is also lower as compared to other good companies.
9. By how much will the price rise on the listing date? We don't know. But how do we know that the price will rise?
Here are 2 reasons:
By the looks of it, LIC could be a great long term investment. Especially since LIC is bound to be the company that stays zindagi ke saath bhi, and zindagi ke baad bhi.