This refers to “LIC's governance makes it a poor market bet” by Subhomoy Bhattacharjee (February 27). The writer makes some interesting points about the governance structure and accounting methods, especially relating to profit calculation, which will be useful for potential investors as and when the IPO hits the market. LIC has been used as the government's white knight in rescuing many market offerings while saving it from financial stress by resorting to imaginative accounting at times. LIC's surplus has been built over decades. thanks to its monopoly status and these reserves belong to the policyholders and not the sovereign. Going by the experience and track record of IPOs of ONGC, Coal India and a dozen other PSUs, it is doubtful whether investors will reap reasonable capital appreciation and dividends.
There is an acute shortage of good quality stocks in Indian market with continuous flow of investors’ money into mutual funds owing to depressed bank deposit rate and taxation issues. It is a classic case of too much money chasing too few stocks. Investors would do well to rethink while committing their hard earned money into IPOs floated by public sector undertakings, especially in sectors where competition is forcing the state behemoths to shed their market share in favour of the private sector.
Ganga Narayan Rath
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