All eyes are on a mega issue, which is likely to hit the capital market anytime soon. Yes, Life Insurance of Corporation India, famously known as LIC, will be filing its draft red herring prospectus with the market regulator within the next few days.
In the 2022-23 Budget announce-ment, the disinvestment target has been more than halved in the current fiscal to ₹78,000 crore and a more moderate target of ₹65,000 crore was set for the upcoming fiscal year.
The Centre had originally planned to raise ₹1.75-lakh crore for the current financial year, and was aiming to raise as much as ₹90,000 crore of this via selling a stake in LIC. This gave rise to speculation that either the LIC issue may get postponed to the next fiscal or if the Centre would split the issue into two one in current fiscal and the second in next fiscal.
DRHP in two weeks
However, putting to rest the speculation, the Secretary of the Department of Investment and Public Asset Management (DIPAM), said that one “should not conjecture” the LIC IPO size based on the revised estimate. “LIC’s draft red herring prospectus is expected to be filed with SEBI in the next two weeks,” he added. “Valuation of LIC is yet to reach final conclusion, based on which we will determine the size,” he further clarified. While everybody is crystal-gazing the size and price of the LIC issue, one thing is certain that it could be India’s largest. Market speculation ranges from ₹50,000 crore to ₹95,000 crore.
RPower: 2008 peak & crash
While one may come to know the actual size in the next few days, some experts seem to believe that the IPO will be the precursor of a market peak, drawing the parallels to the timing of the IPO of Reliance Power. In 2008, when Reliance Power launched its ₹10,123-crore IPO, which was the largest ever at that time, the BSE Sensex crashed from a high of 21,206.77 to a low of 7,697.39. It took almost five years for Sensex to scale back that level again. So, is the market heading for correction next fiscal? Though predicting the market movement is a tough call, there are a few key differences this time around.
Five key reasons
First and foremost, at that time of RPower IPO, irrational exuberance was prevalent. But this time around, the market is still sober, though the current valuation is pricey. Second, foreign portfolio investors, the major influencers of market direction, have already been in sell mode. Even after selling shares worth over ₹1-lakh crore in the past few months, most benchmarks remain somewhat resilient. This signals that the market has enough domestic liquidity to withstand any selling by big names. Besides, the incremental selling from FPIs will be lower.
Third, even as the market is nudging higher levels, several stocks have fallen over at least 30 per cent from their peak level. This signals the maturity of investors, who are now relatively better in identifying the good and bad apples and ‘right’ valuation. Four, economically India is now in a better position, compared to 2008. It stands tall among some of the developed and comparable developing nations.
When Paytm’s (One97 Communications) ₹16,600-IPO was launched last year, similar concerns were raised. Though Paytm shares crashed sharply, it failed to bring down the entire market. This will be the case with LIC, too. If the pricing is expensive, LIC stock may suffer and the selling is unlikely to cater to broader markets. But past PSU offers such as IRCTC show that the pricing of PSU offers is often conservative. However, anything above ₹50,000 crore will definitely suck up liquidity from stock market, but as we have grown strong, this will also be absorbed.