The government is expected to defer the mega initial public offering (IPO) of LIC to the next financial year as the ongoing Russia-Ukraine war has dampened fund managers’ interest in the public issue, market experts said on Sunday.
The government was looking to sell 5 per cent stake in Life Insurance Corporation (LIC) this month, which could have fetched over Rs 60,000 crore to the exchequer. The IPO would have helped meet the curtailed disinvestment target of Rs 78,000 crore this fiscal. “The current geopolitical issue between Russia and Ukraine makes the global equity markets jittery. Indian markets also reacted negatively to this development and corrected nearly 11 per cent from its all time high.
“Thus, the current market volatility is not conducive for the LIC IPO and the government is most likely to defer the issue to next fiscal year,” Arijit Malakar, Head of Retail Equity Research, Ashika Group, said. Generally, in a highly volatile market, investors tend to play safe and refrain from making fresh investments. Thus, the equity market needs to be stable, so that investors can get the confidence to make the investment in the LIC IPO.
Echoing a similar sentiment, Tanushree Banerjee Co-Head of Research-Equitymaster, said the weak market sentiments, especially in the wake of the Ukraine-Russia war, have been a dampener for the IPO. While there is a possibility of the IPO getting postponed, the issue remains critical to the government’s disinvestment plans. Atanuu Agarrwal, co-founder, Upside AI, said in macro uncertainty, there is always a flight to safety to the dollar, away from riskier assets like emerging market equities. This means liquidity drying up in the domestic markets.
“FPIs have anyway been net sellers in emerging markets for the past few months. While domestic investors have been net buyers and have staved off a market crash, given the size of the IPO of USD 9-10 billion, it will need sufficient liquidity to be absorbed. This means it will need FPI support – government is cognizant of this and hence cabinet approved 20 per cent FPI investment in the LIC IPO under the automatic route,” Agarrwal said. The IPO of LIC is purely an offer-for-sale (OFS) by the government of India and there is no fresh issue of shares by LIC. The government holds 100 per cent stake, or over 632.49 crore shares, in LIC. The face value of shares is Rs 10 apiece.
The LIC public issue would be the biggest IPO in the history of the Indian stock market. Once listed, LIC’s market valuation would be comparable to top companies like RIL and TCS. So far, the amount mobilised from IPO of Paytm 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, TradeSmart said the war is now going on in a region where nuclear power plants are operational and any mishap will be disastrous for mankind.
“For the government, a few months’ delays would not matter much given the times we are living in. Yes, the budget numbers will go haywire, especially for FY22, but the divestment credit can be taken in the new fiscal. Further, risking an issue that can bomb in the market is worse than delaying an issue,” he added.According to Ankit Yadav, Wealth Manager (USA), Director of Market Maestroo Pvt Ltd, majority of successful IPOs always come in Bull Run in the stock market.
“Last few weeks the market corrected heavily, so this may not be the right time to push the LIC IPO due to volatility. So, policy makers may defer this for now and bring it on next fiscal year,” Yadav said. Furthermore, IPOs generally come in low rates scenarios. So, now central banks of developed nations have already started hiking rates. So there is very little room to adjust the LIC IPO in the coming time.
“I think due to possibilities of hiking rates from developed nations, LIC IPO may come by the end of April, just as soon as the Ukraine crisis eases,” he added. Finance Minister Nirmala Sitharaman too had indicated a review of the IPO in view of the evolving geopolitical situation.
If the initial share-sale is deferred to the next fiscal, the government would miss the revised disinvestment target by a huge margin. So far, the government has raised Rs 12,030 crore through CPSE disinvestment and Air India’s strategic sale this fiscal. The government had earlier projected to garner Rs 1.75 lakh crore from disinvestment during 2021-22.