NEW DELHI: The initial public offer of Life Insurance Corporation (LIC) of India is set to be the biggest ever in India, and hence, correct timing of the IPO is crucial, the Reserve Bank of India (RBI) has said in its March 2022 State of the Economy report.
"With 35 per cent of the issue size reserved for retail investors, their response is critical for the success of the LIC IPO," says the report. The RBI report further says that the LIC IPO presents a fresh opportunity to deepen the equity markets' reach further. It says that LIC's huge policyholder base has the potential to bring a large number of new investors -- who have historically relied on traditional saving products n-- to the capital markets.
"The deepening of capital markets is also vital for divestment plans of the government, and therefore, it is important to inculcate investors' trust in key market infrastructure institutions," says the report. The government is divesting 5 per cent in LIC through an offer for sale issue of 3,16,249,885 equity shares of the state-owned insurer.
The government had planned to list the IPO in this financial year to meet its disinvestment target of Rs 78,000 crore. Till January, the government had been able to achieve only Rs 12,000 crore. However, given the uncertainty in the market due to geopolitical tension between Russia and Ukraine, the government has now decided to delay the listing of the company.
The finance ministry sources have already hinted that the listing of the state-owned life insurer is unlikely to fructify in the current financial year as the equity market situation is not good at present. Meanwhile, the RBI in its State of the Economy report has said that domestic equities continued to remain under pressure and recorded further correction in early March as concerns over spillover effects of the war in Ukraine and a sharp jump in crude oil prices weighed on market sentiment.
It further said that following the recent correction in equities and resilient growth in corporate earnings, the price-to-earnings (P/E) ratio of the BSE Sensex declined and the valuation premium over its long-term average has moderated.
Geopolitical tension poses downside risk for economy
The RBI in its State of the Economy report has said that despite the ongoing geopolitical crisis India's macroeconomic fundamentals remain strong. However, it believes that the unfolding global developments pose downside risks. It says that spiralling oil and gas prices and unsettled financial market conditions pose fresh headwinds to the still incomplete global recovery.
The country's central bank noted: "As the conflict escalates, oil and other commodity prices are blazing to multiyear highs, and financial markets are on edge, driven by massive sell-offs." However, it pointed out that amidst these testing times, India is making steady progress on the domestic front as it recovers from the third wave.
It says that consumer and business confidence are rising alongside improvement in demand conditions. On the supply side, it says a resilient farm sector and a sustained retrieval in both industrial and services sectors are broadening the recovery.