Tag: India IPO markets

LIC’s IPO will go ahead as planned, despite heightened uncertainty

Life Insurance Corporation’s Initial Public Offering will go ahead as planned and not be impacted by the ongoing Russia-Ukraine conflict, despite heightened uncertainty in the near-term and higher volatility expected in financial markets as the war drags on.

The public offering of shares by India’s state-run LIC, set to be the country’s most significant, will be a test of the depth of domestic capital markets, especially when financial markets face geopolitical strife, and as the implications from the war in Ukraine is nowhere close to being clear.

With wild gyrations in financial markets expected to continue, demand for the public offering of LIC should be in play.

“LIC’s IPO is India’s most anticipated, so I don’t think the Russia-Ukraine conflict will have any impact on it. Yes, the timing may not be right, but the government will do it irrespective. Any change in the plans of LIC IPO will affect the government finances,” said Vaibhav Agrawal, Founder & Chief Investment Officer at Teji Mandi.

“LIC’s discount offer attracted 34 lakh Demat account openings in January. This shows the enthusiasm of Dalal Street,” he said.

Financial markets have been on a roller coaster ride over the past week, tracking the dramatic escalation in tensions in Europe. Safe-haven bets increased after the Russian President ordered his nuclear forces to be on high alert and Western nations responded with fresh sanctions.

This week, more pain is expected for global risk assets on heightened volatility predicted. But the volatility or risk aversion is not likely to hamper LIC’s IPO.

“On Thursday, the market bled tremendously, and on Friday, it went up over 2%. Looking at this market situation, there is no need to worry about the behemoth’s listing. Finance Minister Nirmala Sitharaman on Tuesday said that there is interest in the LIC IPO, and it will be launched as decided,” said Mr Agarwal.

“The market is volatile for many reasons, but the central government needs to meet the fiscal target. Moreover, the IPO was long due; the IPO being pushed to a later date is very unlikely,” he added.

The government is rushing to complete the IPO by the end of March to meet its 2021/22 fiscal deficit target, which is needed to finance its fiscal expansion plans set in the budget.

According to a Reuters report, India’s cabinet approved a policy amendment allowing Foreign Direct Investment (FDI) of up to 20% in LIC, a change aimed at easing the listing of the state-run insurer.

The government expects this move, along with other simplifications in FDI policy, to “make India an attractive investment destination” and is going ahead with listing LIC’s shares, which should open for subscription in the second week of March.

LIC’s public offering of shares is expected to open for anchor investors on March 11. The book would open for bidding by other investors a couple of days later.

But Lekha Chakraborty, Professor at the National Institute of Public Finance and Policy in New Delhi, said, “I think global macroeconomic uncertainties arising out of the Russia-Ukraine crisis will adversely impact energy price volatility. These macroeconomic uncertainties are hard to measure. The geopolitical tensions will further aggravate the macroeconomic consequences on inflation and interest rates.”

“As far as IPO is concerned, we need to take a decision only in March. We need to see how the geopolitical situation will play out,” she added.

Still, analysts suggested strong demand when asked about investors’ appetite for an IPO amidst gyrating financial market moves.

“When it comes to IPO, investors remain excited. Many investors exit from stocks to buy IPOs. Talking about the LIC IPO, investors have been eyeing it for a long time, and so are policyholders. Many investors would also want to make quick money, given the current market volatility, said Teji Mandi’s MR Agarwal.

“I think investors’ appetite is rising. Given the pedigree of LIC and the efforts behind launching the share sale, there is a lot of potential for the investors’ interest,” he added.