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This marks a significant corporate action for LIC, approved by shareholders, aiming to align its paid-up capital with its large reserves. By doubling the number of shares, the insurer expects to improve marketability and attract a wider range of investors.
Boosting Liquidity and Affordability
The bonus issue directly aims to increase LIC's stock liquidity. With more shares outstanding, the price per share is expected to decrease, making it more affordable for retail investors. This strategy is similar to what other companies have used to expand their investor base and trading volume. LIC's market capitalization was approximately ₹5.06 lakh crore as of May 20, 2026. While the bonus issue won't change this overall valuation, it is intended to make the stock more attractive for smaller transactions, potentially boosting market activity.
Financial Strength and Peer Context
LIC's strong financial position supports this bonus issue. The company plans to use about ₹6,325 crore from its reserves, which totaled around ₹1.5 lakh crore as of December 31, 2025. Its consistent profitability is evident from a profit after tax of nearly ₹33,998.12 crore for the first nine months of FY26 and a full-year FY25 net profit increase of 18% to ₹48,151 crore. As of May 2026, LIC's Price-to-Earnings (P/E) ratio was approximately 10.6, considered reasonable for its size. LIC holds a dominant market share of over 66.2% in new business premium in India, significantly larger than peers like SBI Life Insurance and HDFC Life Insurance.
Potential Concerns: Dilution and Market Reaction
A key concern is the government's large stake of about 96.5% in LIC. The bonus issue doubles the share count, which could pave the way for future stake sales by the government to meet minimum public shareholding rules. This increased supply might create a medium-term dilution risk, potentially pressuring the stock price. The market can sometimes overreact to bonus issues, creating an "expectation gap" where investors anticipate value increases that do not materialize fundamentally. Investors should differentiate between the short-term positive sentiment from increased liquidity and the company's long-term value, which depends on its business growth and profitability. Metrics like LIC's PE ratio of 10.23 and PB ratio of 3.89 as of May 18, 2026, will be closely monitored.
Looking Ahead
LIC's upcoming quarterly results for January-March 2026, due May 21, 2026, will offer insights into its performance. The market will watch how profitability and premium income trends develop after the bonus issue announcement. Analysts, including Citi with a previous target price of ₹1,345, suggest upside potential. LIC's long-term success will depend on its ability to maintain growth and adapt to the changing market and regulatory landscape.