Government could postpone LIC IPO to next fiscal year amid Ukraine crisis: experts

The IPO would have helped meet the restricted divestment target of ₹78,000 crore this fiscal year

The IPO would have helped meet the restricted divestment target of ₹78,000 crore this fiscal year

The government is expected to delay LIC’s mega initial public offering (IPO) until next fiscal year as the ongoing war between Russia and Ukraine has dampened fund managers’ interest in the public offering, market experts said on March 6.

The government this month wanted to sell a 5 percent stake in Life Insurance Corporation (LIC), which could have raised the Treasury over 60,000 crore.

The IPO would have helped meet the restricted divestment target of ₹78,000 crore this fiscal year.

“The current geopolitical issue between Russia and Ukraine is making global stock markets nervous. The Indian markets also reacted negatively to this development, correcting almost 11% from their all-time high.

“As such, current market volatility is not conducive to LIC’s IPO and the government will most likely delay the issuance until next fiscal year,” said Arijit Malakar, Ashika Group’s head of retail equity research.

In a highly volatile market, investors generally tend to play it safe and refrain from new investments. Therefore, the stock market needs to be stable for investors to gain confidence to invest in LIC’s IPO.

Tanushree Banerjee, co-head of research-equitymaster, shared a similar sentiment, saying weak market sentiment, particularly following the Ukraine-Russia war, has held back the IPO. Although there is a possibility that the IPO will be postponed, the issue remains crucial to the government’s divestment plans.

Atanuu Agarrwal, co-founder of Upside AI, said in the face of macroeconomic uncertainty there is always a flight to the safety of the dollar, away from riskier assets like emerging market stocks. As a result, liquidity in the domestic markets dries up.

“FPIs have been net sellers in emerging markets for the past few months anyway. While domestic investors have been net buyers and averted a market crash, given the $9-10 billion size of the IPO, sufficient liquidity is needed, which means it will need FPI support – the government is aware of this and so the Cabinet has approved a 20% FPI investment in the LIC IPO through the automated route,” said Mr. Agarrwal.

The IPO of LIC is an Offer-Only Offer (OFS) by the Government of India and there will be no re-issuance of shares by LIC. The government owns 100% or over 632.49 million shares in LIC. The par value of the shares is £10 each.

LIC’s public offering 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 from Paytm’s IPO in 2021 was the largest ever at 18,300 crore, followed by Coal India (2010) at almost 15,500 crore and Reliance Power (2008) at 11,700 crore.

Vijay Singhania, chairman of TradeSmart, said that the war is now raging on in a region where nuclear power plants are operational and any mishap will be catastrophic for humanity.

“For the government, delays of a few months would not matter much given the times we live in. Yes, the fiscal numbers will be mixed up, particularly for FY22, but the sale credit can be drawn in the new fiscal year. Also, risking an issue that can bombard the market is worse than delaying an issue,” he added.

According to Ankit Yadav, Wealth Manager (USA), Director of Market Maestroo Pvt Ltd, most successful IPOs always come in the bull run on the stock market.

“The market has corrected sharply over the last few weeks, so this may not be the right time to move forward with the LIC IPO due to the volatility. Therefore, policymakers can postpone this for the time being and implement it in the next fiscal year,” said Mr. Yadav.

Additionally, IPOs generally come in low interest rate scenarios. So now the central banks of the industrialized nations have already started raising interest rates. So there is very little room to adjust LIC’s IPO in the coming period.

“I think due to the possibility of interest rate hikes in developed countries, LIC’s IPO could happen by the end of April once the Ukraine crisis eases,” he added.

Finance Minister Nirmala Sitharaman had also indicated a review of the IPO given the developing geopolitical situation.

If the initial share sale is delayed until next fiscal year, the government would fall well short of the revised divestment target. So far the Government has raised £12,030m through the CPSE divestment and strategic sale of Air India this financial year.

The government previously forecast to receive 1.75 lakh crore from divestments in 2021-22.

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