Despite Ukrainian crisis, LIC IPO still on target

A lot of things have changed in the last few weeks for Indian markets. The markets have cracked under the pressure of the Ukrainian crisis. Oil has once again crossed $100/bbl, albeit briefly, and even the rupee went beyond Rs.76/$. FPIs have sold nearly $22 billion since October last year and the latest revelations on the algo case have been disconcerting. In this situation, there are questions being raised if LIC IPO in March is really practical.

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For now, there is no change in plans, or that is what the finance minister and Tuhin Kant Pandey of DIPAM have indicated. However, Nirmala Sitharaman hastened to add that the volatility in the markets was due to global factors and the government was closely watching developments in Russia and Ukraine. Considering the size of the LIC IPO at close to $10 billion, robust FII participation and strong market sentiments would be the key.

The government is already facing problems raising debt in the bond markets. For instance. If you look at the month of Feb-22, the central government has raised Rs.10,525 crore via bond issues against the scheduled target of Rs.95,000 crore. The government has affirmed that it does not need the funds due to its comfortable cash position. However, the ground reality is a huge mismatch between yields government is offering and what markets expect.

The success of LIC IPO is extremely crucial to the government for its divestment revenues. In the Budget 2022, the government had downsized its disinvestment target for FY22 from Rs.175,000 crore to Rs.78,000 crore. Even out of the revised target, only Rs.13,000 crore has been raised till date. Hence the success of the Rs.65,000 crore IPO of LIC is almost a sine qua non for the government to ensure that its funding coffers are at a healthy level.

One of the cases that has been a concern and at the centre of attention for the government is the algo case pertaining to the erstwhile senior officials of NSE. A healthy market system is essential to make a success of such a large issue and the government would not want to take any chances with an issue of this size. The last few days has already seen quick action taken and more could follow to underline that the Indian markets are a safe place.

However, the finance minister has herself confirmed that the Russia Ukraine crisis was being closely watched as the global macro situation had degenerated rapidly. Normally, in times of such political uncertainty, there is a natural risk-off tendency towards safe asset classes like gold and dollar denominated assets. That is not a conducive atmosphere for the Indian government, which expects robust participation in LIC IPO from retail and institutions. 

For now, the government roadshows for the LIC IPO are on in full swing. Perhaps, more clarity on the foreign investor appetite will emerge only after these roadshows. The geopolitical situation does not look like it will improve in the next one month, so the LIC IPO will have to go ahead in the shadow of the current conflict. Time is running out as the government needs to close the IPO by mid-March to be able to list LIC in March itself.

For now, the government continues to exude confidence but the consolidated feedback from the roadshows may give a clearer picture. In the case of LIC, the government will not only be keen on a good subscription response but also at a robust listing for the stock. Unless that is ensured, the government may not be too keen to pursue the IPO. The next few days may be extremely critical for the fate of the LIC IPO.

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