India’s decision to go ahead with a very low target for its life insurer’s initial public offering, as skittish investors continue to draw money from the South Asian nation, is jeopardizing the country’s fiscal deficit target.
The board of Life Insurance Corporation of India on Saturday approved the sale of a 3.5% stake for about Rs 210 billion ($2.8 billion), down from the Rs 500 billion estimated before Russia’s invasion of Ukraine. According to people with knowledge of the matter, with the withdrawal of foreign funds worth over $16 billion from Indian stocks this year, anchor investors were reluctant to commit as the war eroded demand for equities.
Prime Minister Narendra Modi needs an influx as prices of crude oil – one of India’s biggest imports – have risen. The cost has gone up so much that it has become impossible for the administration to continue taxing the fuel, which is crucial for bridging the budget deficit. Dropping pump prices increases the risk of inflation and potential social unrest, which is already rampant in neighboring countries as the region recovers from the pandemic.
“I am deeply grateful to the people of India,” Finance Minister Nirmala Sitharaman said in an interview in Washington last week while outlining some of her government’s welfare programs. “Unless people stand up and say ‘Okay, we have to avoid this,’ it’s not going to be easy.”
LIC is seeking a valuation of Rs 6 trillion and may open the offer in the first week of May, officials told reporters, citing rules for speaking to the media. He said details like issue price and date would be known around Wednesday, pending regulatory approvals.
missing target
The finance ministry missed Modi’s mammoth asset-sale target of Rs 1.75 trillion for the last fiscal year by a wide margin after delays in monetization plans, including LIC’s listing. The target for the current year is Rs 650 billion, which will control the overall budget deficit at 6.4% of GDP.
“It will be difficult for the government to meet its deficit target, as the size of the IPO is now very small,” said Kranti Bathini, a strategist at Mumbai-based Wealthmills Securities Pvt Ltd. The war in Ukraine has completely changed the mood of foreign investors who are now hesitant to invest. LIC IPO It has already been delayed, first because of covid, then this war. It is difficult for the government to delay it further.”
The government’s main challenge is that while it has reduced the size of the LIC IPO, the sale will still be India’s biggest, surpassing the listing of One97 Communications Ltd, which raised around Rs 183 billion in November . Finding buyers for such a huge offer can be a challenge in the current economic climate.
India’s benchmark index, one of the world’s best performers last year, has fallen 1.8% in 2022. The country’s inflation rate has breached the central bank’s tolerance band for three consecutive months, and swaps are pricing in the most aggressive monetary tightening among major central banks. banks in the area. Rupee is also reaching a new record low.
However, the Finance Minister is confident about completing the sale. Markets in India are maintaining a “positive sentiment”, and LIC share sale should be relaxed, Sitharaman said last week ahead of the board’s approval.
This story has been published without modification in text from a wire agency feed. Only the title has been changed.