Shares of Life Insurance Corporation of India (LIC) fell sharply on Tuesday, August 4, after the government launched an offer for sale (OFS) to pare its stake in the state-owned insurer, with the floor price set at a steep discount to the previous closing price.
LICstock was trading at Rs 398.5 in morning trade, down 7 percent for the day. The stock has declined 6.5 percent so far in 2026, compared with a 6 percent fall in the Nifty 50. At the current price, LIC has a market capitalisation of around Rs 5.05 lakh crore.
The government on Monday announced an OFS comprising a base offer of 2.5 percent of LIC's paid-up equity, along with a greenshoe option to sell an additional 4 percent. If the greenshoe option is fully exercised, the government could sell as much as 6.5 percent of LIC's equity through the transaction and raise up to around Rs 31,000 crore.
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The OFS floor price has been fixed at Rs 382 per share, representing an 11 percent discount to LIC's Monday closing price. The discounted floor price and the potential size of the share supply put the stock under pressure in Tuesday's trade. LIC shares at Rs 398.50 were trading only around 4 percent above the Rs 382 OFS floor price in Tuesday morning trade.
The OFS opened for non-retail investors on August 4, while retail investors will be able to participate on August 5. Department of Investment and Public Asset Management (DIPAM) Secretary Arunish Chawla said the base offer would comprise 2.5 percent of LIC's paid-up equity, with another 4 percent available under the greenshoe option.
The stake sale is also an important step towards increasing LIC's public shareholding and meeting the minimum public shareholding norms prescribed by the Securities and Exchange Board of India (SEBI). The government currently owns 96.5 percent of LIC, leaving only 3.5 percent with public shareholders. If the entire 6.5 percent offered under the base issue and greenshoe option is sold, the government's holding would decline to 90 percent.
SEBI has given LIC until May 2027 to reduce the government's stake to 90 percent as part of its minimum public shareholding compliance requirements. Listed companies are generally required to maintain public shareholding of at least 25 percent.
The latest OFS would therefore take LIC closer to meeting its regulatory shareholding requirements, although the government's ownership would remain substantial even after a full exercise of the greenshoe option.
Apart from regulatory compliance, the increase in publicly available shares could have implications for LIC's trading liquidity and its prospects for inclusion in passive indices in future reviews. Market participants will be watching whether the larger free float improves the insurer's eligibility for such indices.
LIC made its stock market debut in May 2022 after the government sold shares through the country's biggest initial public offering. The latest transaction marks another significant reduction in the government's holding in the insurer since its listing.
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