In a major policy decision, the Union Cabinet has reportedly cleared an amendment to allow up to 20 per cent foreign direct investment (FDI) under the “automatic route” in Life Insurance Corporation. This comes ahead of the proposed initial public offer of LIC, which is expected to be the largest in the Indian capital markets so far.
The government is intending to mobilise more than Rs 60,000 crore from the proposed IPO e to meet its disinvestment target of Rs 78,000 crore for current financial year. While LIC is yet to announce the IPO price, market estimates are that the IPO is likely to be Rs 2,000-2,100 per share.
The existing FDI Policy did not prescribe any specific provision for foreign investment in LIC, which is established under the LIC Act, 1956. The FDI ceiling for LIC has now been made at par with that of the public sector banks. While the government had last year raised the FDI limit in the insurance sector to 74 per cent from 49 per cent, it did not cover LIC that is covered by a specific legislation.
The government is of the view that this would facilitate participation of foreign investors in the IPO of LIC. Meanwhile, the National Stock Exchange decided to relax the eligibility criteria of Nifty equity indices and for replacement of stocks in various indices, reducing the minimum listing history of constituents from three months to one calendar month, effective from March 31.
This relaxation is expected to pave the way for the inclusion of LIC, which plans to list its shares in March, in the benchmark Nifty 50 Index. Since many passive funds allocate investments to indices and index stocks, the move, along with FDI permission, would enable large inflows in the LIC IPO.
Government sources stating that the reform in the FDI policy will have several benefits. It would facilitate foreign investment in LIC and such other corporate bodies, for which the government may have a requirement for disinvestment purposes. The reform will facilitate ease of doing business and lead to greater FDI inflows, and at the same time, ensure alignment with the overall intent/objective of FDI policy,”
Once the SEBI approves the issue, the IPO is likely to open for subscription in the second week of March and trading will commence by the third week, industry sources said. The government is going ahead with the listing of the latter’s shares, despite increased volatility in the markets amid increasing global concerns.
