LIC IPO creates demand for new Demat accounts

The upcoming LIC IPO has resulted in an increase in the number of Demat accounts in India. The government's decision to offer a quota and discount to LIC policyholders in the IPO has encouraged several beneficiaries to open Demat accounts.

How LIC's IPO has pushed a race for new Demat accounts

An initial public offering (IPO) is the process of selling shares of a private company to the general public through the issuance of stocks. After the IPO, the company gets listed on the stock market and trades like a standard company. In the same series, the government is lowering its shareholding in LIC through its upcoming IPO. It is an open call to the public to participate in LIC's ownership by purchasing stocks of the company. However, you must have a Demat account to invest in an IPO.

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When is LIC IPO scheduled?

The Life Insurance Corporation of India (LIC), India's largest insurer, has already secured the nod from the SEBI, and its IPO was expected from March 11, 2022. But, due to turbulence in the market because of the Russia-Ukraine crisis, the IPO has been delayed. However, the government has time until May 12, 2022, to launch the IPO without filing fresh papers with SEBI.

How LIC IPO affects brokers and investors?

This increase in the opening of Demat accounts has been propelled by the government's decision to provide a quota of 10% for LIC policyholders in the IPO – a first-of-its-kind – as well as the likelihood of a price reduction in the IPO. 

While the LIC works out the wrinkles before launching the massive IPO, which is expected to be valued at more than Rs 1 lakh crore, brokers are preparing to capitalise on the enormous interest from LIC policyholders. Brokers anticipate that the LIC IPO will help them win new clients because many first-time capital market investors may open Demat accounts exclusively to invest in this IPO.

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Notably, the CEO of IIFL subsidiary, Prakarsh Gagdani, has predicted that 10-30 lakh new Demat accounts will be opened exclusively to participate in the LIC IPO.

However, the final figures may exceed forecasts because Gagdani admits that if policyholders are given a discount, more of them will apply for the IPO.

Tapping existing LIC policyholders is the key

LIC penetration is significantly higher than that of the brokerage industry. This can be gauged by the fact that LIC has around 25 crore policyholders, while India has only 8 crore Demat accounts. This implies that if the LIC policyholders are incentivised and encouraged, the number of Demat accounts can quickly go to new heights. Hence, brokers are striving to make the investing process as simple as possible for these first-time stock market investors.

It also implies that this renewed demand for the Demat accounts is because of the under penetration of Demat accounts compared to LIC policies.

During the last several financial years (2015-2021), LIC has sold an average of 2.08 crore new individual insurance policies every year. On the other hand, Demat accounts have just recently begun to proliferate, particularly during the COVID-19 pandemic. In the fiscal year 2020-2021, the number of Demat accounts climbed by 29 per cent and by 37 per cent in the fiscal year 2021-2022 (up to October 31, 2021).

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The LIC IPO has caused a rise in the number of Demat accounts in India. Moreover, since the government has announced to offer some privilege to the existing LIC policyholders in the upcoming LIC IPO, this surge in Demat accounts will continue further. 


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