The mega initial public offering by Life Insurance Corporation (LIC) could give a fresh impetus to the growth in new demat accounts as stock brokers and grey market operators are tapping millions of LIC policyholders, who have not yet traded in equities, to open new trading accounts and then hire it on rent for a fee. The brokers are not only offering to bear the entire cost related to opening an account but also fund the IPO application.
Discount to policyholders
LIC will be filing documents with market regulator SEBI in the next 8-10 days for its expected ₹85,000-crore IPO. The public issue is likely to kick up a frenzy for retail investors since the insurance behemoth may offer a 10 per cent discount on IPO application to its policyholders in the retail category. The government has already proposed a reservation in the IPO for LIC policyholders. To corner this discount quota shares, brokers are willing to pay anywhere between ₹2,000 and ₹4,000 to LIC policyholders to open demat accounts and rent it to them for IPO application, market sources told Business Line. Since many of these brokers also double up as LIC agents they have ready access to policyholders’ databases. The fee could even increase after the details related to the IPO price band becomes clear. Funding for the IPO application will be given by brokers, sources say.
LIC has over 32 crore policyholders and brokers are expecting to tap at least 5-10 per cent of this pool, who they believe have no demat accounts so far. Large brokers have even started issuing newspaper advertisements to attract LIC policyholders to open demat accounts with them.
Even if you go by most conservative estimates, anywhere between one and three crore new demat accounts are likely to be opened by LIC policyholders, brokers in Mumbai said. The recent spate of initial public offerings has pushed up the number of demat accounts to more than 8 crore demat accounts compared to around 3.6 crore in 2018-19.
“LIC IPO will kick-up a storm since it will be a catalyst for the demat accounts boom similar to the Jan-Dhan accounts policy that spurred a fintech and banking revolution in the country. Nearly 4-5 crore unique LIC policyholders do not have demat accounts. LIC itself is calling them to open demat accounts so that their insurance policies can be linked with demat for the purpose of discount and IPO application in reserved category. I believe this could be the biggest initiative in bringing a large pool of new investors to the capital market. Nothing less than a demat accounts revolution,” said Arun Kejriwal, founder, Kejriwal Research and Advisory.
Brokers further say that LIC is likely to propose holding its policy into demat form instead of current physical form, which could make claim settlement easy. This would be an impetus for the demat accounts on an unprecedented scale. The total valuation of LIC is expected to be around ₹16-lakh crore (over $ 213 billion), which will make it India’s second-largest company after Reliance Industries. It straight away makes its way into Sensex and Nifty inducing a high amount of trading from global investors.
The IPO is expected to open for subscription in the first week of March once SEBI gives a final go-ahead, since the government wants to complete its stake sale in this financial year itself.