Life Insurance Corporation of India (LIC) is all set to go public. The roadshows are on in full swing and the initial public offer (IPO) will be open in a few weeks. However, much has changed in the markets ever since LIC filed its document with the Securities and Exchange Board of India (SEBI) on February 16.
While the overall sentiment was already a bit subdued due to liquidity outflows and valuation concerns, the sentiments have taken a fresh hit due to the escalating geopolitical tensions in the Russia-Ukraine matter.
Here are the key challenges the insurance behemoth is likely to face as it fires all cylinders to make its IPO a grand success.
Russia-Ukraine impact on the markets
Till recently, marketmen were only talking about what could happen to the stock markets if the geopolitical tensions between Russia and Ukraine escalate.
A full-scale invasion was looked upon as a low probability event but given the current scenario, the market, which was already on tenterhooks, has taken a beating and it doesn't appear like the volatility is going to die down soon.
The IPO of LIC is no ordinary one. It is going to be India's biggest and hence could face difficulties due to extreme volatility. It is often said on Dalal Street - the area in Mumbai where BSE is located - that no matter how big or powerful a brand, the market has its own way of dealing with it.
The immediate impact of the Russian invasion was that the benchmarks lost nearly 5 per cent in one single day. The losses have been partially recouped but the outlook is quite uncertain, which is not good news for IPO-bound companies including LIC.
On a different note, the Russia-Ukraine matter is pushing up crude prices as well that, in turn, could stoke inflation in many countries including India. That is certainly not a good sign for both, stock markets and central banks.
On Thursday, crude breached the $100 a barrel mark for the first time since September 2014 though it has cooled down a bit post the sudden surge.
Liquidity concerns
Retail investors are coming to the markets in record numbers but foreign portfolio investors (FPIs), who do big-ticket trades on the bourses, are missing if the last few months are taken into account. In January, FPIs sold Indian stocks worth $4.5 billion - the highest single-month selling since March 2020.
Incidentally, FPIs have been net sellers in each month starting October 2021 and have cumulatively sold shares worth nearly $13 billion. In the current month, FPIs are net sellers at $3.3 billion.
A slowdown in FPI flows typically affect the overall market sentiments and even as retail investors may line up actively for LIC shares, it remains to be seen how the foreign investment community sees the government-owned company from a longer-term perspective.
A perception that government could continue interfering post listing could hamper the appetite amongst institutional investors, especially foreign ones.
Newly-listed shares in doldrums
Another factor that would weigh in on investors' minds is the performance of some of the recently-listed companies. The BSE IPO index is down nearly 14 per cent in the last one month while the Sensex lost around 3.5 per cent in the same period.
Some of the notable listings of last year and even that of the current year like AGS Transact Technologies, Star Health & Allied Insurance, Paytm, Cartrade, Zomato, Policybazaar, Nazara Technologies and FINO Payments among others have all dropped significantly from their highs.
While there are companies who are still doing well when compared to their respective issue prices, the overall sentiment towards public issues seems to be relatively less bullish when compared to last year which saw IPOs set a new record in terms of fund mobilisation as over Rs 1 lakh crore was raised.
Brand, a big positive though
LIC is a household brand in India and among the largest life insurers globally. The brand has built a lot of trust and goodwill over the decades and that is bound to attract a lot of investors to the IPO of the insurance behemoth.
If marketmen are to be believed, there will be enough appetite for LIC shares among investors even though the external and internal overhangs could hamper demand a bit.
The irony is that while many companies have put their IPOs on hold due to the ongoing concerns, LIC does not have the luxury of time as the government just cannot afford the issue spilling over to the next fiscal.
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