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Market experts on Sunday said the government may postpone LIC’s mega initial public offering (IPO) to the next financial year as the Russo-Ukraine war has dampened the interest of fund managers in the public issue.
The government was looking to sell 5 per cent stake in Life Insurance Corporation (LIC) this month, which could fetch over Rs 60,000 crore to the exchequer. This IPO would have helped in meeting the disinvestment target of Rs 78,000 crore in the current financial year.
“The current geopolitical issue between Russia and Ukraine continues to haunt the global equity markets. Indian markets too reacted negatively to this development and corrected almost 11 per cent from their all-time highs.
“Thus, the current market volatility is not conducive for LIC IPO and the government may defer the issue to the next financial year,” said Arijit Malakar, Head of Retail Equity Research, Ashika Group.
Generally, in highly volatile markets, investors play safe and avoid making new investments. Thus, the equity market needs to stabilize, to give investors the confidence to invest in LIC IPO.
Echoing a similar sentiment, Tanushree Banerjee, Co-Head of Research-Equitymaster, said that weak market sentiment, especially in the wake of Ukraine-Russia war, has been a dismay for IPOs. Though the IPO is likely to be postponed, the issue remains critical for the government’s disinvestment plans.
Atanu Aggarwal, co-founder of Upside AI, said that in greater uncertainty, away from riskier assets like emerging market equities, there is always a flight to the safety of the dollar. This means liquidity is drying up in the domestic markets.
“FPIs have been a net seller in emerging markets for the past few months anyway.
While domestic investors have been net buyers and have survived the market crash, given the size of the IPO of USD 9-10 billion, sufficient liquidity would be required to absorb it.
This means it will require FPI support – the government is aware of this and hence the cabinet has approved 20 per cent FPI investment in LIC IPO under the automatic route,” Agarwal said.
LIC’s IPO is purely an offer for sale (OFS) by the Government of India and there is no fresh issue of shares by LIC. The government has 100 percent stake or more than 632.49 crore shares in LIC. The face value of the shares is Rs 10 per share.
LIC Public Issue will be the biggest IPO in the history of Indian stock market. Once listed, LIC’s market valuation will be at par with top companies like RIL and TCS.
So far, the amount raised from Paytm’s IPO in 2021 was the largest at Rs 18,300 crore, followed by Coal India (2010) at around Rs 15,500 crore and Reliance Power (2008) at Rs 11,700 crore.
TradeSmart President Vijay Singhania said that the war is now going on in an area where nuclear power plants are operational and any accident would be disastrous for mankind.
“For the government, a delay of a few months may not make much sense considering the time we are living in. Yes, the budget figures will be messed up, especially for FY22, but disinvestment credit will be taken in the new financial year. Also, a risky issue that could explode in the market is worse than delaying an issue.”
According to Ankit Yadav, Director, Wealth Manager (USA), Market Maestru Pvt Ltd, most of the successful IPOs always result in a bull run in the stock market.
Yadav said, “There has been a huge decline in the market in the last few weeks, so this may not be the right time to go ahead with the LIC IPO due to volatility. Hence, policy makers can defer it for now and move it to the next financial year. can bring in.”
Also, IPOs usually fall under the low rates scenario. Therefore, now the central banks of developed countries have started increasing the rates. Therefore, there is very little scope for adjusting LIC’s IPO in the coming time.
“I think LIC IPO may come by the end of April, as soon as the Ukraine crisis subsides, due to the prospects of rate hikes from developed countries,” he said.
Finance Minister Nirmala Sitharaman had also indicated a review of the IPO in view of the evolving geopolitical situation.
If the initial share-sale is postponed to the next financial year, the government will miss the revised disinvestment target by a huge margin. So far this fiscal, the government has raised Rs 12,030 crore through disinvestment of CPSEs and strategic sale of Air India.
The government had earlier projected to raise Rs 1.75 lakh crore from disinvestment during 2021-22.
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