Prime Minister Narendra Modi’s government raised $2.7 billion by selling shares of Life Insurance Corporation of India, including to millions of families across the country who have LIC policies. Shares begin trading on Tuesday at a time when markets around the world are shaken by the fallout from the Russian invasion of Ukraine and rising interest rates.
While deep-pocketed global funds can withstand volatility, small investors, especially first-time shareholders like those created by the LIC listing, risk getting burned if stocks underperform. 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 worsen if the market price drops,” said Amitabh Dubey, a political analyst at research firm TS Lombard. “The government could face criticism.”
Headquartered 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 firm has almost $500 billion in assets, 250 million policyholders and accounts for nearly two-thirds of the market.
“The emotional argument that LIC is a giant and its brand value needs to be turned into profitability for retail investors,” said Subhash Chandra Garg, a former top finance ministry bureaucrat in the Modi government.
LIC’s offer was oversubscribed almost three times, policyholders submitted offers for more than six times, and the employee portion received orders for four times the shares reserved for them. While the main portion of the IPO attracted sovereign wealth funds from Norway and Singapore, most of the shares went to domestic mutual funds.
IPO of LIC to list on Tuesday: everything you need to know about it
NEW DELHI: Amid much fanfare, India’s Life Insurance Corporation (LIC) initial public offering has successfully completed most of the procedures. Bidders have also received their allotted shares in their demat accounts. All eyes will now be on the listing that is scheduled for next week. Here are some things you should know right now.
Funds from the initial public offering will be critical to boosting the government’s finances and reaching a deficit target of 6.4% of gross domestic product for the fiscal year that began on April 1. inflation in a maximum of eight years.
The LIC debut, which is expected to bolster Modi’s image as a reformer and jump-start other privatization plans, comes as capital market activity has slowed significantly amid weak global stock markets. Foreigners have squeezed a record $24 billion out of local stocks since October, and the benchmark S&P BSE Sensex index has fallen for five straight weeks, the longest losing streak since April 2020.
Modi’s popularity is unlikely to suffer if LIC shares fall, while his Bharatiya Janata Party faces no substantial opposition and has won several key states. “The government’s popularity and image will come out unscathed” as the fractured opposition cannot challenge the narrative that a listing will make LIC efficient and profitable, said Akshay Dhume, professor in the economics department at Alliance University, Bengaluru.
A spokesman for the prime minister’s office did not respond to requests for comment.
Smaller investors are expected to ride out any early price fading, which is likely given the so-called “grey market” indication the shares may drop Rs30 from their IPO price of Rs949.
The biggest test will be the performance of LIC shares over a longer period, which may be a disappointment if past state IPOs are any indication, including
., General Insurance Corp. and Co. Ltd. and New India Assurance, the two state-owned insurers that listed in 2017, have been the worst performers, trading around 75% below their IPO prices.
The tide has also turned for newly listed companies. The S&P BSE IPO Index, a gauge of newly traded stocks, is down almost 26% so far this year. The largest IPO in the country up to LIC,
it is the worst performer for the index, down 75% since its much-anticipated float in November.