LIC's OFS discount looks tempting, but triggers don't

Synopsis

Analysts hold differing views on retail investor interest in LIC's offer for sale. The government is divesting a stake to meet minimum public shareholding norms. Some analysts cite attractive valuations and discounted pricing for participation. Others caution about the absence of immediate upside triggers for the insurer. The offer aims to comply with regulatory requirements and potentially reduce the government's stake.

Mumbai: Analysts are divided on retail participation in the ₹30,000 crore offer for sale (OFS) from Life Insurance Corp of India (LIC), with opinions split between attractive valuations and absence of near-term triggers at the insurance behemoth. While some see merit in the insurer's discounted pricing and low price-to-embedded value compared with private peers, others caution that the OFS primarily aimed at meeting minimum public shareholding norms may not drive immediate upside.

On August 3, the Centre announced an OFS in LIC, with the issue set to open for non-retail investors August 4. The OFS comprised a base offer of 2.5% of LIC's paid-up equity, with an additional 4% greenshoe option, taking the total potential divestment to 6.5%.

Read more: LIC shares sink 9% as OFS opens at 11% discount. Here's all you need to know

The retail tranche of the two-day share sale will open for bids on Wednesday after the non-retail portion was subscribed more than three times on Tuesday, the first day of the issue.

Bids were placed for more than 940 million shares against the 284.6 million shares on the block, prompting the government to activate the green-shoe option.

The stock fell 8.6% to ₹391.40 on Tuesday. The floor price for the OFS was set at ₹382 per share, a discount of about 10% to LIC's closing price of ₹424.40 on July 3.

As of March 2026, the government held a 96.5% stake in the insurer. "Investors with a long-term horizon may consider participating in the LIC OFS, given the compelling valuation gap," said Ajit Mishra, SVP Research, Religare Broking. "The stock is currently trading around 0.30 times price-to-embedded value, significantly lower than the 2-3 times multiples commanded by private peers, offering a favourable risk-reward proposition."

Analysts, however, cautioned the OFS is unlikely to act as an immediate rerating trigger. The correct framework for an OFS participation decision is not price versus market, it is price versus intrinsic value, according to Manish Bhandari, CEO and portfolio manager, Vallum Capital.

"Retail investors in the LIC IPO, after considering dividends, are roughly at breakeven over a four-year period. I would evaluate it against embedded value, VNB (Value of new business) growth and private-sector peers not against the pre-OFS closing price.," he added. Analysts do not rule out a further OFS to comply with Sebi requirement on minimum public shareholding.

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