LIC IPO: Financing curbs could make HNI response a litmus test 

The mega public issue of Life Insurance Corporation of India (LIC) opens today for the public and all eyes would be on the largest-ever initial public offer to hit the Indian stock markets. 

The IPO with a size of nearly Rs 21,000 crore was in the making for long and was supposed to hit the markets in the previous financial year. But a combination of factors – market volatility, valuation and general uncertainty, among other things – delayed the issue and it has finally opened today. 

Incidentally, the government has brought the issue at a time when the Reserve Bank of India (RBI) has already put stringent curbs for non-banking financial companies (NBFCs) that earlier used to finance rich individuals – high net worth individuals (HNIs) or non-institutional investors (NIIs) in industry parlance – thousands of crores that would see the HNI portion getting subscribed in multiples of hundreds. 

Currently, NBFCs can fund only Rs 1 crore per borrower for bidding shares in an IPO. Earlier there was no limit and ultra HNIs were known to leverage heavily and put bids worth hundreds of crores in an IPO. 

If subscription details of the two recently-closed IPOs – Rainbow Children’s Medicare and Campus Activewear - are anything to go by, then the RBI rule has undoubtedly impacted the HNI response.  

In the case of Campus Activewear, the HNI portion was subscribed 10.68 times while for Rainbow Medicare, it was only 1.37 times. While the HNI portion got subscribed, it was only a fraction of what some of the earlier issuances witnessed. 

For example, in 2021, which was a record year for IPOs in terms of fund raising, there were as many as 25 IPOs that saw their respective HNI portion getting subscribed over 100 times. 

Interestingly, the institutional portion of any IPO is practically sold out even before the issue opens as bankers pitch the company to large investors during the roadshows. In the case of retail investors, bids come from both, short-term and long-term investors, and for a company like LIC there would be a decent genuine demand – though there are still mixed views on the response that LIC would see from retail investors. 

That leaves the HNI portion, which historically was dependent on financing from NBFCs to put in large bids and inflate the overall oversubscription numbers. Now, with the IPO financing route practically shut, it would be a tough ask for an IPO of such size to get genuine demand from this class of investors. 

While the government has been smart in reducing the overall size of the issue and pricing it in a way that the general market believes is attractive from a long-term perspective, the response from HNI investors would be something to watch out for.

Also read: LIC IPO opens today: Should you subscribe to India's largest share sale? 

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