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“There have been a lot of issues which the institutional investors or the analyst community have been raising. Just before the IPO, LIC has been sort of demutualised and the embedded value (EV) went up from say Rs 20,000 crore to roughly Rs 5 lakh crore and you know the VNB margins also went up just before the IPO,” says Digant Haria, Co-Partner, GreenEdge Wealth


Look at the grey market premium. These are not benchmarks. These are indicative returns. I have been told the LIC issue is trading at a premium. It looks like markets are pretty much realising that LIC is an issue where there is money to be made in the short term, medium term, long term?
True, for the retail and policy holders, there is a good 5% to 8% extra to be made here. Such excitement is fine, it had to be built and when the government is hell bent on pushing its largest company. It is fine and there could be some listing pop. But as we have discussed a lot of times, LIC is a giant not so much used to working with what the public market investors want. So, while there is excitement, some listing pop can create more excitement. But yes, we have to be rational in the sense that it is a large company and it will take time to make genuinely big profits out of this.

Where do you think LIC would settle three to six months after listing?
It is a difficult question to answer. Even if you are going to put a gun to my head, I have to put a range – somewhere between plus 0% and 20% upside. That is what I am looking at in terms of this stock. The reason for this is that the government is selling 3% stake in this and so there will be more to come. As the one-year period goes away, that fear will also start building in the stock.

In the meanwhile, there have been a lot of issues which the institutional investors or the analyst community have been raising. Just before the IPO, LIC has been sort of demutualised and the embedded value (EV) went up from say Rs 20,000 crore to roughly Rs 5 lakh crore and you know the VNB margins also went up just before the IPO.

While I do not think these are really big concerns right now because LIC was governed in a very different way before the IPO and now after the IPO, its profits and everything will be governed in a very different way. I am not too concerned about that but these are things which are too new and the market will take three, six, nine months to digest that.

Secondly, what LIC has in its favour is that the economy is opening up, insurance policies need a person to go and sell the policies physically. So the next six to months could be good for the sector as a whole. I just think that the gains which we will see from the IPOs could probably remain and we will not see a fiasco like the ones we have seen in a lot of government listings in the past decade. I would be really calibrated that pricing is okay, there is excitement, there is hope but yes let us see LIC deliver over the next three, six, nine months.

The embedded value is 1:1. It is at a significant discount as far as the private insurance companies go. What is going to be the impact on the rest of the space?
The rest of the space has been consolidating for a fairly long period of time because of two reasons; one is that because of Covid, they had slightly higher claims than their usual trajectory and second is that the growth has been pretty subdued because as we have discussed in the past, nobody wakes up in the morning to buy insurance.

India is still a country where insurance needs to be sold. So, both the factors are now coming to an end. In some ways, the physical economy is opening, people can meet, people can discuss business and sell insurance and second is the claims will also not be so high as we have seen in the Covid years.

I think the sector as a whole looks good to me for the next 12 months but the joker in the pack here is what LIC does in the new age insurance products. LIC has typically not been very aggressive in the non-participating products like ULIP or credit linked insurance or personal protection. If LIC decides to get aggressive, then over the longer term, the private insurance companies see these as the most profitable products of private insurance companies and their valuations are very high versus an LIC, because their margins are high because of these products.

If LIC decides to enter these products I think there could be some competition. See in the past we have seen that government companies can never really disrupt the private market very fast (4:00) slow to respond so LIC has launched their first ULIP plans in October 20 it is still not like really picked up in the way that an LIC machinery can really push that product so I think LIC has to train its 13 lakh agents and it will be a slow change.

For the private insurers, next one year looks good and in the next one year, we will see a lot more interaction from LIC in the next 12 months.

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