Millions of Indians investing in the country’s biggest listing could sour the equity market if the stock follows the poor performance of its state-run predecessors.
Prime Minister Narendra Modi’s government raised $2.7 billion by selling shares in Life Insurance Corporation of India, which covers millions of families across the country holding LIC policies. The stock began trading Tuesday at a time when markets around the world are being hit by Russia’s invasion of Ukraine and rising interest rates.
While global funds with deep pockets can face volatility, small investors – especially first-time shareholders such as those created by LIC’s listing – risk burning if the stock performs poorly. Of the 21 Indian state-run companies that debuted on the stock market since 2010, half are still trading below their issue price.
“The mood may turn bad if market prices fall,” said Amitabh Dubey, 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 policies. The 65-year-old firm has about $500 billion in assets, 250 million policy holders and makes up about two-thirds of the market.
Subhash Chandra Garg, a former top bureaucrat in the finance ministry in the Modi government, said, “The emotional logic of LIC being a giant and its brand value needs to be converted into profitability for retail investors.”
LIC’s offer was oversubscribed nearly three times, with policyholders bidding for more than six times and employee shares receiving orders for four times the shares reserved for them. While the anchor portion of the IPO attracted sovereign funds from Norway and Singapore, the majority of the shares went to domestic mutual funds.
fund from IPO The fiscal year beginning April 1 will be crucial for consolidating government finances and meeting the deficit target of 6.4% of GDP. The money can also be used to provide tax relief on fuel to individuals who are battling inflation. Highest of eight years.
LIC launchThe move, which is expected to bolster Modi’s image as a reformer and activate other privatization plans, comes as capital-market activity has slowed significantly amid weakness in global equity markets. Foreigners have pulled out a record $24 billion from local stocks since October, and the benchmark S&P BSE Sensex fell for five consecutive weeks, its longest loss since April 2020.
Modi’s popularity is unlikely to suffer if LIC shares fall, while his Bharatiya Janata Party has not faced any major opposition and has won several key states. “The government’s popularity and image will be retained” as the fragmented opposition cannot challenge the statement that a listing will make LIC efficient and profitable, said Akshay Dhume, professor in the department of economics at Alliance University, Bengaluru.
A spokesman for the Prime Minister’s Office did not respond to requests for comment.
Smaller investors are expected to pull out of any opening price swing, indicating a so-called “grey market” that the stock could slip 30 rupees from its IPO price of 949.
The big test will be how LIC stock performs over the long term, which could be disappointing if earlier state IPOs including Coal India Ltd., General Insurance Corp. and New India Assurance Company Ltd. GIC and New India Assurance are any indication. , the two state-run insurers listed in 2017 have been the worst performers, trading nearly 75% below their IPO prices.
Recently, the trend has changed for listed companies as well. The S&P BSE IPO index, which is a gauge of newly listed stocks, has fallen nearly 26% so far this year. The country’s biggest IPO till LIC, Paytm, is the worst performer of the index, down 75% since its much-anticipated float in November.