Millions of Indians investing in the country's biggest listing could be in trouble if the stock follows the poor performance of its predecessors.
Prime Minister Narendra Modi's government raised over $2 billion by selling shares in Life Insurance Corporation of India. The stock starts trading on Tuesday at a time when markets worldwide are being roiled by Russia's invasion of Ukraine and rising interest rates.
Small investors, such as the ones created by LIC's listing, risk being burned if the stock performs poorly. Half of the 21 Indian state-run companies that debut in the stock market since 2010 are still below their issue price.
The government could face criticism if the market price falls.
LIC is a household name in India, with more than 100,000 employees and over 300 million policies. The firm has almost $500 billion in assets, 250 million policy holders and makes up almost two-thirds of the market.
The emotional argument of LIC being a monolith needs to be turned into profitability for retail investors, according to a former top bureaucrat.
LIC's offer was oversubscribed by nearly three times, with policyholders placing bids for over six times and the employee portion receiving orders for four times the shares reserved for them. Most of the shares went to domestic andmutual funds, despite the fact that the anchor portion of the IPO drew in Norway and Singapore.
The fiscal year that began April 1 has a deficit target of 6.4% of gross domestic product. The funds could be used to give tax relief to people who are struggling with inflation.
The debut of LIC, which has been expected to bolster Modi's image as a reformer, comes when capital-market activity has slowed due to weakness in global equity markets. Since October, foreign investors have pulled out a record $24 billion from local stocks, and the benchmark S&P BSE Sensex has fallen for five weeks in a row.
Modi's popularity is not likely to be affected if LIC shares fall.
The prime minister's office didn't respond to requests for comment.
Smaller investors are expected to ride out any early price tumble, which is likely given that the gray market is indicating that the shares may slip from their IPO price.
The bigger test will be how LIC stock performs over a longer period, which may be a disappointment if earlier state IPOs are any indication. GIC and New India Assurance, the two state-run insurers that were listed in 2017, have been the worst performers.
The tide has also turned for recently-listed companies. The S&P BSE IPO Index, a gauge of newly listed shares, has fallen nearly 26% so far this year. The country’s biggest IPO until LIC, Paytm, is the index’s worst performer, down 75% since its highly anticipated float in November.You can download your money calendar here and keep your dates with your moneybox.
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