Prime Minister Narendra Modi’s government has raised $2.7 billion through the sale of shares in India’s life insurance company, including to millions of families with life insurance policies across the country. The stock begins trading on Tuesday at a time when markets around the world are suffering from the fallout from the Russian invasion of Ukraine and rising interest rates.
While global funds with deep pockets can tolerate volatility, small investors — especially first-time shareholders like those created by LIC’s list — risk getting burned if the stock underperforms. Of the 21 Indian state-run companies that debuted on the stock market since 2010, half are still trading below the issue price.
“The mood could deteriorate if the market price falls,” said Amitabh Dube, a political analyst at research firm TS Lombard. The government may face criticism.
Headquartered in Mumbai, LIC is a household name in India, with 2,000 branches, over 100,000 employees and 286 million insurance policies. The 65-year-old company has nearly $500 billion in assets, 250 million policyholders and nearly two-thirds of the market.
“The emotional argument that LIC is giant and the value of its brand needs to be turned into profitability for retail investors,” said Subhash Chandra Garg, a former chief finance bureaucrat in Modi’s government.
The life insurance company (LIC) bid was covered nearly three times, with policyholders bidding more than six times and the employee portion receiving orders for four times their reserved stock. While the bulk of the IPO attracted sovereign funds from Norway and Singapore, most of the shares went to local mutual funds.
LIC IPO put up for listing on Tuesday: Everything you need to know about the issue
New Delhi: With great fanfare, the Initial Public Offering of the Life Insurance Company (LIC) in India has completed most of the proceedings successfully. The bidders also received their allocated shares in their demat accounts. All eyes will now be on the list scheduled for next week. Here are some things you should know at this point.
Funds from the IPO will be critical to boosting government finances and achieving the deficit target of 6.4% of GDP for the fiscal year that began on April 1. The money could also be used to give fuel tax credits to individuals, who are struggling. Inflation is at an eight-year high.
The debut of the LIC, which was expected to bolster Modi’s image as a reformer and revitalize other privatization plans, comes when capital market activity has slowed dramatically amid weakness in global stock markets. Foreigners have pulled a record $24 billion from domestic stocks since October, and the S&P BSE Sensex has fallen for five consecutive weeks, the longest losing streak since April 2020.
Modi’s popularity is unlikely to be affected if LIC shares decline, while his BJP faces little opposition and has won several key states. Akshay Dum, a professor in the Department of Economics at Alliance University in Bengaluru, said that “the government’s popularity and image will not be affected” because the divided opposition cannot challenge the narrative that the list will make LIC effective and profitable.
A spokesman for the Prime Minister’s Office did not respond to requests for comment.
Small investors are expected to avoid any early price swoon, which is likely given that the so-called ‘gray market’ suggests the shares could drop by Rs 30 from the IPO price of 949.
The bigger test will be how LIC stock performs over a longer period, which could be disappointing if previous IPOs are any indication, including
. , General Insurance Corp. and Co. Ltd. And New India Assurance, the two state-owned insurance companies listed in 2017, were the worst performers, trading 75% below IPO prices.
The tide has also turned for recently listed companies. The S&P BSE IPO, a measure of newly listed stocks, is down nearly 26% so far this year. The largest IPO in the country up to LIC,
is the worst performing index for the index, down 75% since its highly anticipated float in November.