The central government is preparing to divest a 2-3% stake in Life Insurance Corporation (LIC) during the financial year 2025-26, subject to prevailing market conditions. This move aligns with the regulatory requirement of achieving a minimum public shareholding of 10% by 2027, as mandated by the Securities and Exchange Board of India (SEBI).
Rather than opting for a single, large-scale stake sale, the government is considering a phased approach. The proposed divestment is expected to take place in smaller tranches to optimise value realisation and minimise market disruption.
A government source quoted in a report by Mint emphasized the objective of maximizing Life Insurance Corporation LIC’s stock value while ensuring minimal impact on the financial markets. Given the insurer’s market size and capitalisation, any stake sale will significantly influence stock market dynamics.
The phased approach would likely involve two rounds of stake sales. If market conditions become unfavorable, the government may seek an extension beyond the planned timeline.
In a parallel move, the Department of Investment and Public Asset Management (DIPAM), under the Ministry of Finance, has invited bids from merchant bankers and legal advisors. These entities will oversee the sale of minority stakes in various public sector banks (PSBs) and financial institutions, including LIC, over the next three years.
Currently, the government holds a 96.5% stake in LIC following the insurer’s landmark Initial Public Offering (IPO) in May 2022. The IPO raised approximately Rs 21,000 crore through a 3.5% stake sale, marking one of India's biggest-ever public listings.
As of the latest trading session, LIC’s shares were priced at Rs 754.10 per share on the Bombay Stock Exchange (BSE). With LIC’s market capitalisation standing at approximately Rs 4.8 trillion, the proposed 2-3% stake sale could generate revenue between Rs 9,500 crore and Rs 14,500 crore.
Securities and Exchange Board of India (SEBI) initially mandated LIC to comply with the 10% minimum public shareholding rule by May 2024. However, this deadline was extended to May 16, 2027, allowing additional time for compliance.
A government source noted that while the administration aims to lower its stake in LIC to 10% by the 2027 deadline, it may seek further extensions if market conditions prove unfavorable.
Reports from June 2023 indicated that the government had postponed its LIC stake sale for the financial year 2024-25 to gauge investor sentiment. The next potential divestment is now expected in FY26.
The forthcoming sale could involve the divestment of 1.5% of the government’s holding, which would increase LIC’s public float to 5%. This could pave the way for LIC’s inclusion in index funds, potentially enhancing investor confidence and liquidity. Depending on market conditions, a subsequent sale of an additional 1-1.5% stake could follow.
The Indian government’s plan to divest a 2-3% stake in LIC during FY26 reflects a strategic approach to meeting SEBI’s minimum public shareholding mandate while optimizing market conditions. By adopting a phased sale strategy, the government aims to maximize LIC’s valuation and ensure stability in the stock market. However, uncertainties in market conditions could lead to an extension of the 2027 deadline.
Additionally, the broader disinvestment push, including stake sales in public sector banks and financial institutions, highlights the government's commitment to economic reforms and fiscal consolidation. With LIC’s substantial market presence, any reduction in government ownership could enhance liquidity and potentially lead to its inclusion in index funds, attracting institutional investors.
As the disinvestment process unfolds, investor sentiment and market conditions will play a crucial role in determining its success. If executed strategically, this move could strengthen India’s financial markets and bolster investor confidence in the insurance sector.