In execution of a disinvestment plan of INR 78,000 crore Government of India is come up with the Initial Public Offering of Life Insurance Corporation (LIC). Gov holds the 100% stack in the LIC. But they might be deferring the largest IPO of Indian history to the next year. Because of the ongoing Russia-Ukraine War. This war impacts heavily on the IPO because fund managers’ interest in the public issue dampened a lot. So, in today’s article, we talk about the reasons why the Indian Gov. may defer the LIC IPO to the next year.
The Indian government was expected to sell a 5 per cent stack of the LIC this month. And it will help them to archive the disinvestment target of INR 78,000 crore in this fiscal year. But now it may defer to the next fiscal year because of the current geopolitical issue between Russia and Ukraine. The invasion of Russia over Ukraine turns the global equity market red. The Indian markets are also impacted. It was corrected nearly per cent from their all-time high. It might be an opportunity to invest in the market. To read more about it click here.
In these types of situations where the markets are volatile investors tend to play safe. It means they don’t want to take much more risk and invest heavily. Usually, FPI and DPI are making their stand neutral and refrain to make fresh investments. The LIC IPO is the biggest IPO in the history of the Indian stock market. The face value of the share is INR 10 per share. That means LIC’s overall market valuation would be analogous to Reliance Industries and Tata Consultancy Services. Because of these reasons, IPO will need sufficient liquidity to be absorbed. For that, we need the Foreign Portfolio Investor (FPI) support. That’s why the cabinet approves the 20 per cent allocation towards the FPI investments.
If we consider the normal scenario most of the IPOs come at low rates. In simple words, central banks of developed nations keep their interest rates low. The impact of law rates maintains the liquidity in the market. If any market enjoys a good amount of liquidity then it will definitely responds to the public issues. But in the current scenario, the central banks of the developed nations are hiking their interest rates. It means the liquidity may not be as high as we want to adjust the LIC IPO in the upcoming few months.
If the LIC IPO defer to the next fiscal year then it will definitely impact the disinvestment plan and meeting the target established by the Government of India. Gov. has to revise the targets and execution plans to compensate for this huge margin gap. In this fiscal year, Gov. has raised some chunk by the CPSE disinvestment and Air India’s strategic sale to Tata Sons.
Here we can conclude that because of the current geopolitical issue between Russia and Ukraine the Indian Government is likely to be in the favour of deferring India’s biggest public issue of Life Insurance Corporation. And it also impacts the governments’ disinvestment plans. Here we can only make hope that war will stop as soon as possible and the market again face the bull run. Also, investors got the chance to invest in the LIC soon.