The much-anticipated initial share sale of Life Insurance Corporation of India (LIC) is likely to increase rural participation in the Indian equity market as broking firms and market observers expect a spurt in demand for new demat accounts , especially from investors in smaller towns.

“The LIC IPO will be a milestone event for the Indian capital markets and is expected to attract millions of new investors. Given the trust that LIC has built with the common man over the decades, a lot of these investors, who might also be policyholders, are expected to come from Tier-2 and -3 towns,” said Varun Sridhar, CEO, Paytm Money.

The Initial Public Offering (IPO) of the State-run insurer will be open to the public and policyholders from May 4 to May 9. LIC is expected to mop up around ₹21,000 crore through its IPO. The price band of the IPO is set at ₹902-949 per equity share, with a ₹60 discount for policyholders and ₹45 discount for employees and retail investors.

Sanjeev Kumar, Co-Founder and CEO of rural-focussed fintech Spice Money, said a majority of rural households have little or no financial literacy and most prefer to park their money in bank deposits and therefore settle for low-interest rates, while investments in capital markets offer massive opportunities to grow their wealth. Spice Money recently partnered with Religare Broking to take the mega LIC IPO to 10 crore rural households by simplifying demat account opening process.

Growth in demat accounts

In the last two years, India has seen nearly 5 crore new demat accounts added. The shift to working from home due to the Covid-19 pandemic, increased savings, There-is-no-alternative (TINA) factor for investments, the massive bull run and a series of IPOs have attracted a large number of people to the equity market. And broking firms saw a large number of new investors coming from smaller towns as well.

Take Angel One, for instance. The broking firm recorded its highest gross addition of 1.5 million new clients in Q4 FY22. 94 per cent of this client addition came from tier-2 and tier-3 cities. Similarly, ICICI Securities, which acquired 618,000 new clients in Q4 FY22, said 85 per cent of the acquisitions were from Tier-2 and Tier-3 cities. Motilal Oswal Financial Services added 8.8 lakh new clients in FY22. Its share of Tier-3 city acquisitions went upto 60 per cent in FY22 from 50 per cent in FY21.

“Ease of opening demat accounts, good profits earned in the one-way rallies of May 2020 and October 2021, and abysmally low returns from fixed income contributed to the explosive growth in demat accounts,” said VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

“Since the LIC IPO is fairly valued and there is an attractive discount of ₹60 to policyholders, the IPO is likely to get a good response. A large number of retail investors from Tier-2 and Tier-3 towns will be attracted through the LIC IPO,” he added.

Kranthi Bathini, Director, WealthMills Securities, said awareness around equity investments in rural areas has been growing in recent times. “The LIC IPO will surely attract a lot of interest from rural India. However, the government has cut the issue size from 5 per cent to 3.5 per cent. If a large number of retail investors as well as policyholders apply, how the allotment will happen has to be seen.”

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