The share price of LIC slipped more than 8% in the intraday trading session after the Centre announced an Offer for Sale (OFS) to reduce its holding in the insurance giant. 

The sharp fall left many investors wondering whether the decline reflects concerns about the company itself or is simply a reaction to the discounted share sale offer.

Here’s a look at why the stock is under pressure and what the OFS means for existing and prospective investors.

Government to sell upto 6.5% in LIC

The Centre has launched an Offer for Sale to sell up to 6.5% stake in LIC.

The government is initially offering 2.5% equity while retaining the option to sell an additional 4% stake through the green shoe option if demand remains strong.

The issue opens first for institutional investors, while retail investors will be able to place bids on the following day.

ALSO READ

If the entire issue is subscribed, the government is expected to raise around Rs 31,000 crore. This will make it one of the largest disinvestment exercises in recent years.

Department of Investment and Public Asset Management (DIPAM) Secretary in a social media post on X said, “Offer for Sale in LIC opens tomorrow for non-retail investors. Retail investors can bid on Wednesday. The Government offers to disinvest 2.5% of equity, with an additional 4% as a green shoe option. The floor price has been fixed at Rs 382 per share. This will help achieve MPS milestones ahead of schedule.” 

Why did LIC shares fall?

One of the key reasons behind today’s fall in the share price of the company was the pricing of the OFS.

The government fixed the floor price at Rs 382 per share. This was nearly 10% below the previous day’s closing price.

LIC share price dropped more than 8% intraday.

Importantly, the decline was driven more by the OFS pricing than by any deterioration in LIC’s business fundamentals.

LIC OFS: What exactly is a floor price?

Many investors confuse the floor price with the final issue price.

The floor price is simply the minimum price at which the promoter – in this case, the Government of India is willing to sell its shares.

No investor can place a bid below this level.

The issue price is also known as the discovered price. It is decided only after bidding ends. Depending on investor demand, it may remain at the floor price or move higher, but it cannot be lower than the announced floor price.

Retail investors also have the option of bidding at the cut-off price, which means they agree to buy shares at whatever final price is discovered during the OFS.

LIC: Why is the government selling more shares?

The stake sale is part of the government’s effort to meet SEBI’s minimum public shareholding norms.

At present, the Centre owns 96.5% of LIC. Market regulations require listed companies to gradually increase public shareholding, and LIC has been given time until May 2027 to achieve the required level.

LIC: How has the stock performed?

The stock has declined about 9% over the past month and is down nearly 8% so far this year. It has fallen around 12% over the last one year.

The market capitalisation of LIC stands at around Rs 2.49 lakh crore. The stock trades at a price-to-earnings (P/E) ratio of about 8.7 times. The 52-week high of the stock is at Rs 468.48 and 52-week low is at Rs 360.75.