New Delhi: With limited days left in the current financial year, the Narendra Modi government will have to take a final decision on the initial public offer (IPO) of the Life Insurance Corporation in a day or two, if transactions are to be completed in this fiscal, ThePrint has learnt.
According to sources in the Ministry of Finance, for the IPO to go through successfully, the government will need at least 15 days from the start of the process to the end. Additionally, the volatility in the stock market will also have to be considered before taking any decision.
“The end-to-end transition will require 15 days for completion. Whether we can afford the IPO in 2021-22 will be finalised this week,” a senior finance ministry official told ThePrint on condition of anonymity.
Stock markets have faced severe volatility in the past three weeks — ever since Russia invaded Ukraine — and the trend is likely to persist, as the war rages on.
The LIC IPO was crucial for the government, as it would have helped it bridge a portion of the fiscal deficit in 2021-22, pegged at 6.9 per cent of the GDP. If the IPO does not take place this year, the government is staring at a revenue gap of at least Rs 60,000 crore, the minimum that the LIC listing could have fetched.
A second top official in the ministry indicated that, as of now, the proceeds that were factored in from LIC IPO have been excluded from the fiscal math. This means that the government is already factoring the IPO not happening this year, the official said.
“So LIC is out of our fiscal calculations as we don’t expect it to happen this year now,” he said.
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Biggest ever IPO in Indian stock market history
After getting approval for the IPO from stock market regulator, Securities and Exchange Board of India (SEBI) last month, the ministerial panel — which includes Finance Minister Nirmala Sitharaman, Commerce Minister Piyush Goyal and Roads and Transport Minister Nitin Gadkari — was scheduled to meet to take a final decision on the pricing of the LIC shares.
The Centre is looking to sell five per cent or 31.6 crore shares in LIC through the IPO. The market is expecting the size of the issue to be about Rs 60,000-65,000 crore, valuing the insurer around Rs 13 trillion. With this, the LIC IPO would be the biggest ever in the history of the Indian stock market.
The government has time till 12 May to proceed with LIC IPO, beyond which it may have to seek a fresh approval from SEBI, as the company will have to be re-evaluated based on the recent financial performance. The current embedded value of LIC, pegged at Rs 5.4 lakh crore is as of 30 September.
Meanwhile, the Department of Investment and Public Asset Management is monitoring the volatility in the market daily and is continuously assessing the situation.
India VIX index (or the India Volatile Index), which indicates the degree of volatility expected over the next 30 days in the Nifty, has dropped to 26 from the highs of 32 at the end of February. This is against the index’s normal range of 14-15.
Market experts believe that it would be better for the government to postpone the LIC issue till the stock market normalises, since the size of the IPO is big and will require a substantial participation from foreign portfolio investors that have pulled out some of their money from the Indian markets due to the volatility.
(Edited by Poulomi Banerjee)
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