As Modi govt revisits LIC IPO timing, experts say best to delay it due to market volatility

A group of ministers is likely to meet on 4-5 March to decide whether the govt should go ahead with the IPO, as foreign portfolio investors could be key to its success.

File image of the Life Insurance Corporation of India headquarters in Mumbai | Photo: licindia.in

New Delhi: The Narendra Modi government is considering moving the mega IPO (Initial Public Offering) of the Life Insurance Corporation (LIC), the country’s largest life insurer, to the next financial year due to the extreme volatility triggered in equity markets by the war in Ukraine, and market experts think such a postponement is a good idea.

The Department of Investment and Public Asset Management (DIPAM) has had all hands on deck to ensure the success of the LIC’s IPO, which is likely to put around Rs 65,000 crore in the government’s kitty.

It was also expected to help the government meet the revised disinvestment target, pegged at Rs 78,000 crore for 2021-22. To mitigate such unforeseen volatility, the government has also kept the target for next year at a modest Rs 65,000 crore.

“A group of ministers is likely to meet on 4-5 March to decide whether the government should go ahead with the IPO,” a senior government official told ThePrint. 

The group, also known as alternate mechanism, includes Union Finance Minister Nirmala Sitharaman, Commerce Minister Piyush Goyal, and Road and Transport Minister Nitin Gadkari. The ministers’ group is scheduled to meet and decide the valuation, issue size, and pricing of the shares of LIC.

Chakri Lokapriya, managing director of TCG Asset Management, said “given the current volatility, it is best to postpone the IPO, looking at its size and its importance in the overall scheme of things”.

“The commodity prices are high and that has inflation spillovers, which is never good from the market’s point of view,” Lokapriya said.

However, he believes that the market has the capacity to absorb the IPO as there is enough liquidity in the system and the valuation of LIC, according to its methodology, is now in sync with market expectations.  

India’s volatility index, which indicates expected market volatility in the next 30 days, is currently hovering between 28-28.50. It is around 15 when the market is in a stable phase. 

Mid-March deadline for LIC IPO

The government had set a mid-March deadline for the IPO and its draft red herring prospectus was filed on 13 February, which estimated the company’s embedded value at Rs 5.4 lakh crore as on 30 September 2021. 

According to the draft document, up to 31.6 crore equity shares will be on tap through the offer for sale, representing 5 per cent of the insurer’s equity. There will be no fresh issue of shares.

While the timeline for the IPO was being strictly adhered to, the global economy got stumped by Russia’s invasion of Ukraine, leading to extreme volatility in stock markets world over, including in India.

“There is no fundamental issue in the IPO per se that can hamper it, but yes if you seek Foreign Portfolio Investor (FPI) participation, which in this case will be required since the size of the IPO is huge, it is ideal that the government waits for the dust to settle on Russia-Ukraine related crisis. They can always come back after a month,” said Amit Kumar, portfolio manager at Adroit Financial.

Finance Minister Nirmala Sitharaman, in an interview to The Hindu BusinessLine, said the government is reviewing the timing of the IPO amid a conflict between Russia and Ukraine.

The government is also continuing with its roadshows, a term popularly used for investors’ engagement, and wants to be prepared in case there is enough guaranteed participation from foreign investors that can make the IPO a success.

In an interview with ThePrint, DIPAM secretary Tuhin Kanta Pandey had said the government hopes to sell 25 per cent of LIC’s equity in the next five years.  

(Edited by Saikat Niyogi)