Prime Minister Narendra Modi’s government has raised $2.7 billion by selling shares in Life Insurance Corporation of India, including to millions of families across the country who have LIC policies. The stock will begin trading on Tuesday as markets around the world are shaken by the fallout from Russia’s invasion of Ukraine and rising interest rates.
While global funds with deep pockets can withstand the volatility, retail investors — especially novice shareholders like those created by LIC’s listing — risk getting burned if the stock underperforms. Of the 21 Indian state-owned companies that debuted in the stock market since 2010, half are still trading below their issue price.
“Mood could turn sour if the market price falls,” said Amitabh Dubey, a political analyst at research firm TS Lombard. “The government could be criticized.”
Headquartered in Mumbai, LIC is a household name in India, with 2,000 branches, more than 100,000 employees and 286 million policies. The 65-year-old company has nearly $500 billion in assets, 250 million insured and nearly two-thirds of the market.
“The emotional argument that LIC is a behemoth and its brand value needs to be turned into profitability for private investors,” said Subhash Chandra Garg, a former top bureaucrat at the Ministry of Finance in Modi’s government.
LIC’s offer was nearly three times oversubscribed, with policyholders bidding more than six times and the employee portion receiving orders for four times the shares reserved for them. While the anchor portion of the IPO attracted sovereign funds from Norway and Singapore, most of the stocks went to domestic mutual funds.
LIC IPO To List On Tuesday: Everything You Need To Know About The Issue
NEW DELHI: Amid fanfare, India’s Life Insurance Corporation (LIC)’s first public offer has successfully completed most of its proceedings. Bidders have also received their allotted shares in their demat accounts. All eyes are now on the list that is on the agenda next week. Here are a few things you should know right now.
Funds from IPO will be key to strengthening public finances and meeting a deficit target of 6.4% of gross domestic product for the fiscal year starting April 1. inflation at its highest level in eight years.
The debut of LIC, which is expected to bolster Modi’s image as a reformer and boost other privatization plans, comes as capital market activity has slowed significantly amid weakness in global stock markets. Foreigners have taken a record $24 billion from local equities since October and the benchmark S&P BSE Sensex has fallen for five weeks in a row, 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 has not faced substantial opposition and has won several key states. “The government’s popularity and image will remain unscathed,” said Akshay Dhume, a professor in the economics department of Alliance University, Bengaluru, as the divided opposition cannot refute the narrative that listing will make LIC efficient and profitable.
A spokesman for the Prime Minister’s Office did not respond to requests for comment.
Smaller investors are expected to wipe out any early price drop, which is likely given that the so-called “grey market” indicates the stock could hit rupees 30 off their IPO price of 949.
The bigger test will be how LIC stocks perform over an extended period of time, which can be a disappointment if past IPOs are any indication, including
., General Insurance Corp. and co. Ltd. and New India Assurance, the two state-run insurers listed in 2017, underperformed, trading about 75% below their IPO prices.
The tide has also turned for recently listed companies. The S&P BSE IPO Index, a measure of newly listed stocks, has fallen nearly 26% so far this year. The country’s largest IPO to LIC,
is the index’s worst performance, dropping 75% since its highly anticipated IPO in November.