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Govt might defer LIC IPO to subsequent fiscal amid Ukraine disaster: Experts

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The IPO would have helped meet the curtailed disinvestment goal of ₹78,000 crore this fiscal

The IPO would have helped meet the curtailed disinvestment goal of ₹78,000 crore this fiscal

The authorities is anticipated to defer the mega preliminary public providing (IPO) of LIC to the subsequent monetary 12 months as the continuing Russia-Ukraine warfare has dampened fund managers’ curiosity within the public situation, market specialists mentioned on March 6.

The authorities was seeking to promote a 5% stake in Life Insurance Corporation (LIC) this month, which may have fetched over ₹60,000 crore to the exchequer.

The IPO would have helped meet the curtailed disinvestment goal of ₹78,000 crore this fiscal.

“The current geopolitical issue between Russia and Ukraine makes the global equity markets jittery. Indian markets also reacted negatively to this development and corrected nearly 11% from its all-time high.

“Thus, the present market volatility will not be conducive for the LIC IPO, and the federal government is more than likely to defer the problem to subsequent fiscal 12 months,” Arijit Malakar, Head of Retail Equity Research, Ashika Group, said.

Generally, in a highly volatile market, investors tend to play safe and refrain from making fresh investments. Thus, the equity market needs to be stable, so that investors can get the confidence to make the investment in the LIC IPO.

Echoing a similar sentiment, Tanushree Banerjee Co-Head of Research-Equitymaster, said the weak market sentiments, especially in the wake of the Ukraine-Russia war, have been a dampener for the IPO. While there is a possibility of the IPO getting postponed, the issue remains critical to the government’s disinvestment plans.

Atanuu Agarrwal, co-founder, Upside AI, said in macro uncertainty, there is always a flight to safety to the dollar, away from riskier assets like emerging market equities. This means liquidity drying up in the domestic markets.

“FPIs have anyway been internet sellers in rising markets for the previous few months. While home buyers have been internet patrons and have staved off a market crash, given the scale of the IPO of $9-10 billion, it would want enough liquidity to be absorbed. This means it would want FPI help – the federal government is cognizant of this and therefore cupboard authorised 20 per cent FPI funding within the LIC IPO underneath the automated route,” Mr. Agarrwal said.

The IPO of LIC is purely an offer-for-sale (OFS) by the government of India and there is no fresh issue of shares by LIC. The government holds 100% stake, or over 632.49 crore shares, in LIC. The face value of shares is ₹10 apiece.

The LIC public issue would be the biggest IPO in the history of the Indian stock market. Once listed, LIC’s market valuation would be comparable to top companies like RIL and TCS.

So far, the amount mobilised from the IPO of Paytm in 2021, was the largest ever at ₹18,300 crore, followed by Coal India (2010) at nearly ₹15,500 crore and Reliance Power (2008) at ₹11,700 crore.

Vijay Singhania, Chairman, TradeSmart said the war is now going on in a region where nuclear power plants are operational, and any mishap will be disastrous for mankind.

“For the federal government, a couple of months’ delays wouldn’t matter a lot given the instances we live in. Yes, the funds numbers will go haywire, particularly for FY22, however the divestment credit score could be taken within the new fiscal. Further, risking a problem that may bomb out there is worse than delaying a problem,” he added.

According to Ankit Yadav, Wealth Manager (USA), Director of Market Maestroo Pvt Ltd, the majority of successful IPOs always come in Bull Run in the stock market.

“Last few weeks the market corrected closely, so this might not be the appropriate time to push the LIC IPO resulting from volatility. So, coverage makers might defer this for now and produce it on subsequent fiscal 12 months,” Mr. Yadav said.

Furthermore, IPOs generally come in low rates scenarios. So, now central banks of developed nations have already started hiking rates. So, there is very little room to adjust the LIC IPO in the coming time.

“I feel resulting from potentialities of climbing charges from developed nations, LIC IPO might come by the tip of April, simply as quickly because the Ukraine disaster eases,” he added.

Finance Minister Nirmala Sitharaman too had indicated a overview of the IPO in view of the evolving geopolitical scenario.

If the preliminary share sale is deferred to the subsequent fiscal, the federal government would miss the revised disinvestment goal by an enormous margin. So far, the federal government has raised ₹12,030 crore by way of CPSE disinvestment and Air India’s strategic sale this fiscal.

The authorities had earlier projected to garner ₹1.75 lakh crore from disinvestment throughout 2021-22.

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