The long-awaited IPO of Life Insurance Corporation of India, which was originally scheduled to launch in the financial year 2021-22 is likely to be postponed to FY 2022-23. The reason the government is planning to delay the launch is uncertain times prevailing due to the geopolitical tensions between Russia and Ukraine.
The financial markets around the world have been trading under pressure since Russia began its attack on Ukraine in the early hours of 24th February 2022. As the tensions are taking a new fold, Russia’s intensity of attacks is increasing, with the latest major strike on one of the largest nuclear plants of Europe which are situated in Ukraine.
Market Expert’s Opinion
The industry experts on Sunday had shared their views about how the Ukraine war-induced volatility and uncertainty has thrown cold water on the interest of fund managers in the LIC IPO. The ongoing war between Russia and Ukraine has put global markets in a panic mode. Investor sentiments are filled with pessimism.
The experts are afraid of the Indian stock markets as they have corrected by falling more than 11% from their all-time high. Nifty’s all-time high was 18,604 whereas Sensex has made an all-time high of 62,245. Both the indices have been under pressure since the war began. Nifty broke its major support of 16,200 and is trading below that, as of Monday.
Therefore the experts believe that the Government is likely to and should push the launch of LIC IPO to the next financial year when the market conditions are more conducive for the public offer. When investor sentiments are positive, there will be high participation in the offer and that will be more beneficial for the Government in its stake sale.
What will the Government be missing out on?
Had the LIC IPO been scheduled to launch as it was planned for in March 2022, the government would have sold its 5% stake in the insurance giant and they could have bagged Rs. 60,000 crores. The sum would have helped the government meet its disinvestment goal of Rs. 78,000 crore for the current fiscal year.
When the stock markets are volatile, the investors play safe. Many investors avoid investing fresh money into the stock markets. The safer options to invest in during market conditions like this are precious metals like gold and silver and bonds. This can affect the Government as demand for LIC shares might be low from investors.
The problem of disinvestment is crucial for the Government but there are still higher chances that the offer might be pushed ahead to FY 2022-23.
Taking the macro-level view of the issue, when a risk like this arises, global investors prefer to move away from emerging economies like India. The dollar becomes a safer option for foreign funds. As the funds move from developing countries like India to developed countries like the US, the liquidity reduces in the domestic stock markets. This is another alarming factor for the LIC IPO to get delayed.
Along with market experts, even Finance Minister Nirmala Sitharaman indicated that the public offer of LIC could get delayed on account of developing tensions between Ukraine and Russia. We have to wait and watch as the government plans its disinvestment.
What is an ideal time for a launch of an IPO?
Ideally, a launch of an IPO becomes successful when the investor sentiments are positive. Also, when the interest rates are low, there are higher chances of IPO’s success as more money tends to divert towards the equity. Since most of the countries are planning to increase the rates, that too is one of the factors in the delay of LIC IPO.
What was the initial target of disinvestment for FY 2021-22?
The government of India’s original goal of disinvestment in the fiscal year 2021-22 was Rs. 1.75 lakh crore. However, this was a projected figure. With the delay of the LIC IPO, the projection will remain far from being achieved in this fiscal year.
Will the delay have a negative impact?
Considering the times that we are living in, first the pandemic and now the war, a little delay will not affect much as the experts believe. It might affect the budgeted number on papers but in practicality, the delay should do good that has any negative impact on the IPO launch.
Disclaimer: This blog is exclusively for educational purposes and does not provide any advice/tips on investment or recommend buying and selling any stock.