New Delhi:
Government is expected to delay Life Insurance Corporation’s mega-initial public offering (IPO)
(LIC) into the next fiscal year as the ongoing war between Russia and Ukraine has dampened fund managers’ interest in the public issue, market experts say.
The government planned to sell a 5 percent stake in LIC this month, which could have raised more than Rs 60,000 crore to the treasury.
The IPO is said to have helped meet the limited divestment target of Rs 78,000 crore this fiscal year.
“The current geopolitical issue between Russia and Ukraine is making global equity markets jittery. The Indian markets also reacted negatively to this development, correcting nearly 11 percent from their all-time highs, so current market volatility is not conducive to LIC and the government’s IPO will most likely postpone the issue until next fiscal year,” said Arijit Malakar, head of retail equity research, Ashika Group.
In general, in a highly volatile market, investors tend to play it safe and forgo new investments. So the stock market needs to be stable so that investors can gain the confidence to invest in the LIC IPO.
Echoing similar sentiment, Tanushree Banerjee, co-head of research Equitymaster, said weak market sentiments, especially in the wake of the Ukraine-Russia war, dampened the IPO. While there is a possibility that the public offer could be delayed, the issue remains critical to the government’s divestment plans.
Atanuu Agarrwal, co-founder of Upside AI, said that in macro uncertainty there is always a flight to safety towards the dollar, away from riskier assets such as emerging market stocks. This means that liquidity in the domestic markets is drying up.
In any case, FPIs have been net sellers in emerging markets in recent months. While domestic investors have been net buyers and have avoided a market crash, given the size of the USD 9-10 billion IPO, it will need adequate liquidity This means it needs FPI support – the government is aware of this and so the cabinet approved 20 percent FPI investments in the LIC IPO through the automatic route,” said Mr Agarrwal.
The public offer is purely an offer for sale (OFS) by the Government of India and there is no new issuance of shares by LIC. The government has a 100 percent stake, or more than 632.49 crore shares, in LIC. The par value of shares is Rs 10 each.
The public issuance of LIC would be the largest IPO in the history of the Indian stock market. Once listed, LIC’s market valuation would be comparable to top companies such as RIL and TCS.
So far, the amount mobilized by Paytm’s IPO in 2021 was the largest ever at Rs 18,300 crore, followed by Coal India (2010) at nearly Rs 15,500 crore and Reliance Power (2008) at Rs 11,700 crore.
Vijay Singhania, chairman of TradeSmart, said the war is now going on in a region where nuclear power plants are operational and any accident will be disastrous for humanity.
“For the government, a delay of a few months wouldn’t make much of a difference given the times we live in. Yes, the budget numbers will be messed up, especially for FY22, but the divestment credit could be included in the new fiscal. bombing the market is worse than delaying a problem,” he added.
According to Ankit Yadav, asset manager (US), market director of Maestroo Private Limited, the majority of successful IPOs are always in an upward trend in the stock market.
“The market has corrected strongly in recent weeks, so this may not be the right time to push through LIC’s IPO due to volatility, so policymakers can postpone this for now and push through into next fiscal year,” said Mr Yadav.
In addition, IPOs generally occur in low-rate scenarios. So now central banks of developed countries have already started raising rates. There is therefore very little room to adjust the IPO of the LIC in the near future.
“I think because of the opportunities to raise developed countries’ tariffs, the IPO of LIC could come at the end of April, just as the crisis in Ukraine subsides,” he added.
Finance Minister Nirmala Sitharaman had also indicated that he would review the IPO in light of the changing geopolitical situation.
If the first share sale is delayed until next fiscal year, the government would miss the revised divestment target by a huge margin. So far, the government has raised Rs 12,030 crore through the divestment of CPSE and the strategic sale of Air India this fiscal year.
The government had previously aimed to collect Rs 1.75 lakh crore from divestments in 2021-22.