The Centre will not dilute any further stake in the Life Insurance Corporation (LIC) for at least one year after diluting a 3.5%-5% stake in the impending initial public offering (IPO), giving the market time to assess the insurer’s performance and potential worth, reported Financial Express citing sources.

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The true worth of a company in the life insurance sector is its embedded value (EV). Following that, market valuation is influenced by corporate growth projections.

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The government would sell a minimum of 3.5% of LIC, but the ultimate size of the IPO might be increased to 5%, as envisaged in the draft red herring prospectus (DRHP), provided adequate interest is demonstrated by anchor investors by Tuesday. The issue might bring in between Rs 21,000 crore and Rs 30,000 crore for the government, far less than previously expected.

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Due to low demand from foreign institutional investors, the Centre has agreed to a significantly lower valuation of Rs 6 trillion for LIC, despite the fact that its owner valued the state-run insurer at roughly double that amount in the FY22 Budget projection. The insurance behemoth is valued at 1.1 times its EV of Rs 5.4 trillion.

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Officials, on the other hand, believe that the long-term potential for expansion of the life insurance sector in India, where LIC holds a two-thirds market share, is positive.

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“The government is diluting only up to 5% via the IPO and 95% will still be with it. So, 95% of subsequent growth in EV will accrue to the government, which will realise a better value in subsequent stake dilution,” according to Financial Express.

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LIC, which has a nationwide presence of 1.35 million selling agents, will expand its business by partnering with other institutions, including banks, to promote its products.