The government is expected to delay LIC’s mega initial public offering (IPO) in the next financial year as the ongoing Russia-Ukraine war has dampened fund managers’ interest in public issues, market experts said on Sunday.
The government wanted to sell 5 per cent stake in Life Insurance Corporation (LIC) this month, which could bring in more than Rs 60,000 crore to the exchequer. The IPO will help meet the investment target of Rs 78,000 crore in this financial year.
The current geopolitical issue between Russia and Ukraine has destabilized the global equity market.
“Thus, the current market volatility is not conducive to LIC IPOs and the government is likely to postpone the issue in the next financial year,” said Arijit Malakar, Head, Retail Equity Research, Ashika Group.
In general, in a highly volatile market, investors tend to play safely and refrain from making new investments. Thus, the equity market needs to be stable so that investors can gain confidence to invest in LIC IPOs.
Echoing similar sentiments, Tanushree Banerjee, co-head of research-equitymaster, said weak market sentiment, especially in the wake of the Ukraine-Russia war, has been detrimental to IPOs. While the IPO is likely to be postponed, the issue is important for the government’s investment plans.
Atanu Agarwal, co-founder of Upside AI, says that in macro uncertainty, there is always a flight to dollar safety away from risky assets like emerging market equities. This means that liquidity in the domestic market is drying up.
“Anyway, FPIs have become net sellers in emerging markets over the last few months.”
Although domestic investors have been net buyers and have prevented a market crash, given the size of the USD 9-10 billion IPO, it will require sufficient liquidity to absorb it.
This means it will need FPI support – the government is aware of this and therefore the Cabinet has approved 20 per cent FPI investment in LIC IPO under automated route, “Agarwal said.
LIC’s IPO is entirely an offer-for-sale (OFS) of the Government of India and there is no new issue of shares by LIC. The government has 100 per cent stake in LIC or more than 632.49 crore shares. The face value of the shares is Rs. 10 per share.
LIC Public Issue will be the largest IPO in the history of Indian stock market. Once listed, LIC’s market valuation will be comparable to that of top companies like RIL and TCS.
So far, the amount raised from Paytm’s IPO in 2021 was Rs 18,300 crore, followed by Coal India (2010) at around Rs 15,500 crore and Reliance Power (2008) at Rs 11,700 crore.
Vijay Singhania, chairman, Tradesmart, said the war is now raging in an area where nuclear power plants are in operation and any accident would be catastrophic for mankind.
“For the government, a few months delay is not very important considering the time we are living in. Yes, budget numbers will be upset, especially for FY22, but investment credit can be taken in the new fiscal year. Throwing a bomb is worse than delaying an issue, “he added.
Most successful IPOs always come to a bull run in the stock market, according to Yadav, director, asset manager (USA) at Market Maestro Private Limited.
“The market has undergone a major overhaul in the last few weeks, so due to volatility, this may not be the right time to push for an LIC IPO. Therefore, policymakers may postpone it for now and bring it back in the next financial year,” Yadav said.
Moreover, IPOs usually come in low rate situations. Therefore, the central banks of developed countries have already started raising rates. So there is very little room to adjust LIC IPO in future.
“I think the LIC IPO may come at the end of April as the Ukraine crisis eases, due to the possibility of rate hikes from developed countries,” he added.
Finance Minister Nirmala Sitharaman also hinted at reviewing the IPO in light of the growing geopolitical situation.
If the initial share sale is postponed to the next financial year, the government will miss the revised investment target by a huge margin. So far, the government has raised Rs 12,030 crore in this financial year through CPSE disinvestment and strategic sales of Air India.
The government had earlier projected Rs 1.75 lakh crore from investment between 2021-22.
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