Why the mega LIC IPO may be a hard sell in March 2022

The initial public offering (IPO) of state-owned Life Insurance Corporation of India (LIC) is topmost on the minds of government departments, financial advisors and investors alike. While investors are looking to pick up a stake — albeit tiny — in the nation’s biggest insurer, the Centre is banking on the IPO to move towards its disinvestment target for the fiscal year that ends this month.

The Department of Investment and Public Asset Management (DIPAM), under the Union Finance Ministry, is reportedly working toward floating the IPO as early as possible. DIPAM, charged with monetising select public sector undertakings (PSUs), views the IPO as a means to partly meet its disinvestment target for FY22.

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However, several financial experts as well as officials at regulatory bodies think the timing may be off. LIC policyholders who wish to participate in the IPO should have linked their PAN with their policies by Monday, February 28. However, an Indian Express report said, the percentage of those who did the linking was rather low. Even fewer have demat accounts, which are mandatory to participate in the IPO, it said.

Poor investor sentiment

Among the red flags the experts are raising are the increased foreign portfolio investor (FPI) outflows over the past few months, which indicate poor sentiment among institutional investors. Considering anchor investors picking up at least a third of the shares on offer is critical for the IPO’s success, the FPI outflows trend is indeed bad news.

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The Russia-Ukraine conflict and its imminent impact on the global economy, leave alone the markets, is another concern. Already, government officials handling the IPO are scaling down the fundraise targets, said media reports.

Retail investors smarting from the erosion of their investments in high-profile IPOs last year — such as Paytm, which has declined nearly 60 per cent since its debut — may be wary of losing more of their wealth through the LIC IPO, say analysts. Over 30 per cent of the new listings on the BSE are estimated to be trading below their offer prices, which cannot be encouraging for small investors.

Other commitments

Further, wealth managers say March is not an advisable month for IPOs. People typically rush to fulfil their income-tax commitments during the month, ahead of the closing of the financial year. This may leave them with not much to spare for an IPO investment.

To woo investors despite the headwinds, the government has announced that LIC’s policyholders and employees will be given a discount. The price band is expected to be tempered to make the offer attractive. How far investors will bite the bait remains the question.