I am not a fan of investing in the IPO, and it is one of the key reasons for me to avoid the LIC IPO. The other two reasons are:
I am not a fan of investing in the IPO for multiple reasons, and LIC IPO is no different.
I don’t invest in IPO because it has become more of a lottery.
If the company is good or the pricing of an IPO is reasonable, the number of times it gets oversubscribed that you are not allotted any units. On the flip side, if the company is not that good, there is no point in applying either.
So, the best time to buy in a company you like in an IPO is after the anchor investors are out or severe market correction after the company is listed.
Still, LIC is different because it is one of the largest Indian general life insurers.
I don’t Invest in PSU.
At the employee level, there is no urge to perform. I am damn sure you have seen this or a similar meme.
Once the people running the company are not interested in performing at the highest level, why we should consider them for investment?
So as a general rule, I am not considering any PSU for investing. However, IRCTC is one of the unique businesses and satisfies all my investment and business checklist to a large extent. Still, I am not considering it for investment because it is a government-owned company.
Many people have asked me questions regarding IRCTC. For them, my answer has always been, I can’t understand why an e-commerce business has to shut down its operation around 11:45 PM? (The time has changed from 11:00 PM to 11:30 PM; now it is 11:45 PM. Still, in 2022, we have an e-commerce company who aren’t able to continue its operation around midnight)
Similarly, I am an account holder in SBI, and the forced move to YONO has so many issues. Sometimes the captcha; other times, it is the OTP, rest of the time, the interface doesn’t load, and you can’t hit the refresh button.
As a customer of SBI, will I ever consider being an investor in it?
The answer is NO.
So how will LIC be different?
They still start their operations after 11 AM only. And I am not the one who considers insurance for investment, so I am glad I am not a customer.
Even if it is the only company listed in the Indian stock market, I am okay not being an investor in it.
I don’t Invest in IPO anymore
IPOs in India are becoming more of lottery tickets now.
If the company is good at the offered price, the number of times it gets over-subscribed that you aren’t getting any units in the allotments. On the flip side, if the company isn’t good, there is no point in applying.
So, in general, IPOs are good to avoid for me.
Further, Warren Buffett had explained an essential concept in the 2004 shareholders’ annual meeting of Berkshire Hathaway:
An IPO situation more closely approximates a negotiated deal. I mean, the seller decides when to come to market in most cases. And they don’t pick a time necessarily that’s good for you (Investor) – Warren Buffett.
There is so much more opportunity in the secondary market that IPO are a total avoid for me now. In an IPO, I only consider adding great companies to my list to track them for future investment opportunities or investing in them on a listing day.
Too Big for My Style of Investing
Last but most importantly, I avoid investing in the LIC IPO because of its sheer size.
I am predominantly a small-cap or mid-cap investor. LIC’s market cap at the higher price band will be ₹6 Lakh Crore. It will be India’s fifth-largest company after RIL, TCS, HDFC Bank, and Infosys. If the company lists at a premium, the market cap will be higher, and it may even become the 4th largest Indian company.
So it will be a large-cap company.
However, one more point that investors should know is though the size of the company is large Government is offloading only a 5% stake now. So it is not as significant an IPO as you may have initially thought. The government may sell the stake in the future and keep the performance post-IPO subdued.
Over to You
Are you investing in the LIC IPO? If yes, what is your rationale behind the investment? Please share them in the comments below.