LIC IPO: Analysts worried about timing, but expect issue to sail through

Despite all the buzz and the interest in the initial public offer (IPO) of Life Insurance Corporation (LIC) slated to open in March 2022, market experts think that the timing of the issue may not be right given the recent headwinds that have triggered a sharp correction across global financial markets, including India.

Dubbed as India's 'Saudi Aramco moment' given its sheer size, the government plans to mop up over Rs 65,000 crore by divesting 5 per cent share in the state-owned insurer. Back in 2019, Saudi Arabian Oil Co (Aramco) came out with the world's biggest IPO, where the Saudi government raised $25.6 billion by diluting just 1.5 per cent stake in the company, valuing it at $1.7 trillion.

"The (LIC) issue's sheer scale means the market's appetite will be tested. 2021 saw record total capital-raising of $34 billion (of which IPOs accounted for $16 billion) — the government's target for LIC is 25 per cent of last year's capital-raising total," Sunil Tirumalai, executive director and India strategist at UBS said in a January 20 co-authored note.

But, is the timing right? Historically, most large-scale IPOs in the last 15 years have run into market turbulence and the stocks have underperformed at the bourses. While pricing / valuation seemed to be a deterrent in some cases such as One 97 Communications – the parent company of Paytm, those of Coal India and Reliance Power hit the Street during the global financial crisis (GFC). SBI Cards, too, got listed on March 16, 2020 – just ahead of the unexpected Covid-related meltdown across most global financial markets, including India. CHECK HERE FOR A GRAPHIC ON HOW BIG IPOs HAVE FARED

"An IPO the size of LIC needs months of intricate planning and coordination. One cannot just switch off or on the entire exercise just because we are in the midst of a temporary bull-market correction. Such corrections are very much part of bull-markets, and one cannot plan the timing of IPOs to perfection. Yes, the correction has been aggravated by the political tensions in Europe; however, if anything from an investor perspective, it will only mean that the price discovery will make the IPO available at an attractive valuation," believes Ashish Gumashta, CEO, Julius Baer.

That said, most analysts see several headwinds for the markets that can keep them choppy over the next few months, which is not an ideal scenario for an issue the size of LIC to sail through easily. However, G Chokkalingam, founder and chief investment officer at Equinomics Research, expects it to get a good response if the price at which it is offered to investors is attractive.

"Market conditions are not conducive but still the LIC issue could go through successfully as policy-holders and public sector banks (PSBs) may come to its rescue. In the last 10 years, LIC has pumped thousands of crores into equities of PSBs. Now, it is time for PSBs to support the equity issue of LIC. PSBs are also in a slightly better position now. Consolidation of these banks has enhanced their balance sheet sizes: their NPAs have come down slightly, and credit growth has picked up significantly to around 8 per cent from pandemic low of nearly 5 per cent," he said.

Jigar Shah, chief executive officer, Kimeng Securities India believes the problem takes place when an IPO is too overpriced and overhyped, which then leads to disappointing start on a count of an external event.

"The de-rating and damage will be greater if the IPO is mispriced. LIC is India's largest company and a household name. It will be part of all big indices. The IPO will have genuine investor demand, but its pricing should leave good returns on the table for investors. I don't see any reason to push back the IPO because it is likely to get a very good response from retail/institutional, foreign and domestic investors," he said.