Prime Minister Narendra Modi’s government has raised $2.7 billion by selling shares of Life Insurance Corporation of India, including to millions of families across the country who hold LIC policies. The stock begins trading on Tuesday at a time when markets around the world are rocked by the fallout from Russia’s invasion of Ukraine and rising interest rates.
While deep-pocketed global funds can weather the volatility, small investors — especially new shareholders such as those created by LIC’s listing — risk being burned if the stock underperforms. Of the 21 Indian state-owned companies that have debuted on the stock market since 2010, half are still trading below their issue price.
“The mood could turn sour if the market price drops,” said Amitabh Dubey, political analyst at research firm TS Lombard. “The government could face criticism.”
Based in Mumbai, LIC is a household name in India, with 2,000 branches, over 100,000 employees and 286 million policies. The 65-year-old company has nearly $500 billion in assets, 250 million policyholders and accounts for nearly two-thirds of the market.
“The emotional argument that LIC is a juggernaut and its brand value needs to be turned into profitability for retail investors,” said Subhash Chandra Garg, a former senior finance ministry official in the Modi government.
The LIC offer was oversubscribed nearly three times, with policyholders bidding more than six times and the employee share receiving orders for four times the shares reserved for them. While the anchor part of the IPO attracted sovereign wealth funds from Norway and Singapore, most of the shares went to domestic mutual funds.
LIC IPO to list Tuesday: Everything you need to know about the matter
IPO of LIC
NEW DELHI: With fanfare, India’s Life Insurance Corporation (LIC) initial public offering completed most of the proceedings. The bidders also received their allocated shares in their demat accounts. All eyes will now be on the registration scheduled for next week. Here are a few things you need to know at this point.
Funds from the IPO will be essential to bolster public finances and achieve a deficit target of 6.4% of gross domestic product for the fiscal year that began April 1. The funds could also be used to provide fuel tax relief to individuals, who are struggling with inflation at an eight-year high.
The LIC debut, which is expected to bolster Modi’s image as a reformer and boost further privatization plans, comes as capital market activity has slowed significantly amid weak global equity markets. Foreigners have withdrawn a record $24 billion from local stocks since October, and the benchmark S&P BSE Sensex has fallen for five consecutive weeks, the longest streak of losses since April 2020.
Modi’s popularity is unlikely to be affected if LIC’s shares fall, while his Bharatiya Janata party faces no substantial opposition and has won several key states. “The government’s popularity and image will be unscathed” as the fractured opposition cannot dispute the narrative that a listing will make LIC efficient and profitable, said Akshay Dhume, a professor in the economics department at Alliance University. from Bengaluru.
A spokesman for the Prime Minister’s Office did not respond to requests for comment.
Retail investors should ride out any early price slump, which is likely due to the so-called “grey market” indicating the shares could lose Rs 30 from their IPO price of 949.
The biggest test will be the performance of LIC shares over a longer period, which may be disappointing if past state IPOs are any indication, including
., General Insurance Corp. and Co. Ltd. and New India Assurance, the two public insurers listed on the stock exchange in 2017, were the worst performers, trading around 75% below their IPO prices.
The tide has also turned for recently listed companies. The S&P BSE IPO Index, a gauge of newly listed stocks, has fallen nearly 26% so far this year. The largest IPO in the country until LIC,
is the worst performer in the index, down 75% since its much-anticipated float in November.