The government has reduced the size of the IPO of Life Insurance Corporation of India (LIC). Experts say that the main reason for this is to keep the stock market stable and prevent the exodus of foreign investors from the domestic market. Also, the government first wants to know what its actual value should be. Small issue will also show how much investor interest is in it.
For these reasons merchant bankers have reduced the valuation and value of LIC. The price of the IPO has been fixed at Rs 902-949, which was earlier estimated to be brought to Rs 1,800. On the valuation front, instead of one lakh crore, 21,000 crore will be raised. With this, LIC will be the 5th largest company in terms of market capitalization after Infosys. It was earlier projected to become the second largest company after RIL.
Government wants to see the atmosphere from small IPO
Economist Dr. Arun Kumar says that those who invest in the stock market, ever withdraw money from the market and put it back in it. No deposit money is put in the market every time.
If the government had brought LIC’s IPO worth one lakh crore rupees, then on the same basis, investors would also withdraw money from the stock market and invest in it. This would create an environment of volatility in the market.
Dr. Kumar says that foreign investors are currently withdrawing money from the domestic market. It is difficult for them to come back. The atmosphere is bad because of Russia-Ukraine. In such a situation, the government wants to see the market environment through small IPOs. After this, the government can sell more of its stake in the second phase.
FPO can come when the situation improves
Bank of Baroda chief economist Madan Sabnavis says the size has been reduced in an uncertain environment. However, the government is committed to continue with the disinvestment. The government may sell stake in LIC through FPO once again this year or next year. It is believed that when the environment improves, the government may plan to sell more stake at a good price.
Rs 60 off for policyholders
In the upcoming IPO on May 4, policyholders can get a discount of Rs 60 per share, while retail investors and employees are expected to get a discount of Rs 40. A total of 22.1 crore shares will be issued. It is believed that the IPO may open for anchor investors on May 2. Bids will be placed in lots of 15 shares.
Size reduced by 80% in one year
On March 28 last year, Chief Economic Advisor KV Subramanian had said that the government could raise one lakh crore by selling stake in LIC. Now it has become 21,000 crores. It has decreased by 80% in one year. Merchant bankers have a role in deciding the price of any IPO. They decide the price by taking the opinion of the investors.
Things got worse in the beginning
A former LIC official said, IPOs come even in bad market environment and get good response. But, the way in which there was an uproar about the valuation of LIC and the amount to be raised, now the matter is stuck.