Headwinds in the Market as LIC IPO Looms

by GoNews Desk 2 years ago Views 6929

LIC Stock Markt IPO Listing Companies
Within next 5 weeks, India is to witness its largest IPO and largescale dilution of its largest insurance agency, the Life Insurance Corporation of India (LIC). The mammoth public sector undertaking has filed its ‘red herring’ prospectus with the market regulator, the Securities and Exchanges Board of India (SEBI) for putting on market 5% of its stock at a price yet to be determined. Its own estimates say that the company is worth more than 5.4 lakh crore or nearly $72 billion. The deal has to be closed before March 31st so the government can balance its books for the financial year 2021-22 and that’s why the government has requested SEBI to clear the prospectus within 3 weeks.

The enormity of this public offering can be gauged by the fact that during the record year of the IPOs in calendar year 2021, Indian IPO proceeds were $16.9b for 110 companies all put together. 

But the IPO market in India – and globally- is facing strong headwinds in year 2022. Going by analysts’ estimates, one third of the companies that listed in 2021 are now selling their shares at less than their listing price.

Some of the major firms like Paytm and CarTrade  (See Chart 1) are selling at 50-60% less than their initial offering price, though the overall market has improved marginally since August when IPO boom began in earnest. As the Ukraine crisis hits the market sentiments again globally, there is a question mark at the timing of this mega IPO by LIC. 

Chart 1: High Profile IPO's Trading In Losses, Including Paytm (One97), Car Trade 

The LIC sell off was conceived at a time when India was a darling of the global capital. It cornered 3.7% of global IPO proceeds in 2021. (See Chart 2 &3) But since then, the Foreign Portfolio Investors have withdrawn more than Rs 28000 crore, nearly $4b from India’s equity markets. Perhaps that’s why the LIC is depending on its 300m policy holders to pitch-in in the effort.

Chart 2: Indian Stock Market Among Global Top 12 In Terms Of IPO Proceeds 2020 vs 2021 

A campaign by LIC has been launched to get the policy holders onboard and 10% of the IPO is earmarked for the current policy holders. Many online appeals have been made to them to link their policies with income Tax PAN numbers and open Demat accounts with intermediaries to participate in the offering. 

Chart 3: Indian Stock Market In Terms Of No. Of IPO's 2020 vs 2021 

Indian equity market has seen one of its best phases during last year beating most of the large bourses across the globe. India’s larger equity Index Nifty50 showed a 24% increase. Private Equity and Venture Capital firms invested more than $34b in new technology companies during 2021 and even Foreign Direct Investment was over $54b.

All that celebration is now winding down as the government’s annual budget failed to enthuse investors. Foreign portfolios continue to withdraw their money and local firms are wary to test the IPO waters. More than 40 companies have received clearance from SEBI but they are waiting to see the result of the LIC IPO. Will it prove to be a lifeline for the edgy markets? Everyone is watching with bated breath.

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