To raise money through LIC IPO, timing is key
The much-awaited public offer of state-run life insurer LIC of India is likely to be delayed owing to market volatility. The ongoing Russia-Ukraine war has soured investor sentiment worldwide, and in the Indian market, foreign investors have been bearish as it is. Since last October, they have been net sellers and withdrawn over Rs 52,000 crore from the equity market in February alone. A firm backing of domestic and foreign institutional investors is essential, without which both credibility and confidence in the scrip will fall like gravity, going only downwards.
The proposed Initial Public Offer (IPO) is the country’s largest-ever public offer yet and hence getting it right is critical, not to record a hallmark moment but keeping in view retail investor interests. About 1 crore policyholders have opened demat accounts eyeing IPO subscription, which means, besides pricing, the post-listing experience should be managed well.
The proposed IPO is crucial for the government’s FY22 fiscal deficit target of 6.4% of GDP and an estimated Rs 63,000 crore needs to be raised. If it’s postponed, the current fiscal’s disinvestment targets will be squarely missed. Last month, they were sharply revised downwards from Rs 1.75 lakh crore to Rs 78,000 crore and the IPO delay could force the government to go hat in hand to the market. In other words, it could spike bond prices and also affect the rupee, which is already under pressure. Bond yields are also under strain from rising crude oil prices, which if they persist, may compel the government to cut fuel taxes leading to higher borrowings in FY23.
In all, the government plans to sell 5% stake hoping to rake in Rs 63,000 crore, which is about 50% of the capital raised through IPOs last year. This needs substantial market liquidity, but given the prevailing uncertainty, it could end up as a juiceless pursuit. Agreed, the government has vowed to list LIC within this fiscal, but timing is everything and if one could achieve success by missing a set deadline, so be it.