It looks like investors’ focus has shifted away from the initial public offering (IPO) market.
As per a leading financial daily, companies with plans of at least Rs 770 bn to raise in IPOs are waiting on the sidelines. 51 companies to be precise.
Even as they have received regulator’s go ahead, companies are waiting for market conditions to improve.
And this doesn’t even include the 43 companies that have filed their IPO documents but haven’t received clearance.
Yesterday, in a big development, the market regulator gave the green light to the much awaited LIC IPO. The regulator issued the observation letter and gave the approval, 22 days after the government submitted the prospectus.
With the regulator clearing approval for India’s largest IPO, will the situation of Indian primary markets get better? Are we about to see a flurry of IPOs every month going forward?
If we are to go by experts, the weak IPO scenario is likely to persist until the end of the fiscal first quarter. The volatility triggered by the Russia-Ukraine war has dampened investor sentiment.
There was tremendous excitement in early days for the LIC IPO when the center informed about the financial position of LIC and the changes in the company structure.
Let’s look at the recent developments with regards to the LIC IPO.
India’s biggest IPO gets the green light. Key details…
LIC on Tuesday received the go-ahead to raise funds via its IPO. The government will sell over 310 million equity shares of LIC, according to the draft red herring prospectus (DRHP).
A portion of the IPO would be reserved for anchor investors. Also, up to 10% of the LIC IPO issue size would be reserved for policyholders.
The IPO is offer for sale (OFS) by the government of India and there is no fresh issue of shares by LIC. The government holds a 100% stake or over 6,324.9 million shares in LIC.
The center is expected to garner Rs 63,000 crore by selling a 5% stake in the life insurance firm to meet the disinvestment target of Rs 78,000 crore in the current fiscal.
The LIC public issue would be the biggest IPO in the history of the Indian stock market. Once listed, LIC’s market valuation would be comparable to top companies like Reliance Industries and TCS.
So far, the amount mobilised from the IPO of Paytm in 2021 was the largest ever at Rs 18,300 crore, followed by Coal India in 2010 at nearly Rs 15,500 crore, and Reliance Power in 2008 at Rs 11,700 crore.
Last month, we published a piece highlighting 6 important things to know before you apply to LIC’s IPO.
You can read the same here: LIC IPO is Here: 6 Things to Know Before Applying.
Expected IPO Launch Date
The ball is in government’s court now.
While the regulator has approved the issue late evening yesterday, the government will have to decide when it wants to launch the issue.
Markets across globe are witnessing a correction of some sort due to the ongoing war between Russia and Ukraine. Thus, the most likely scenario appears that the government may defer the IPO because of weak market conditions.
There have been several reports stating the government may defer the mega LIC IPO to the next financial year, due to high market volatility due to the ongoing Russia-Ukraine war.
Earlier this month, Finance Minister Nirmala Sitharaman said that while she would like to go ahead with the LIC IPO as planned, she wouldn’t mind looking at deferring it given the global considerations.
There are other concerns as well including continuous FII outflows and March not being a right month for a large public issue.
What happens if the LIC IPO is delayed?
The government needs this IPO to be successful. The IPO is crucial for the markets as it will help the government narrow its fiscal deficit.
About 35% of the entire IPO is reserved for retail investors, so that’s a huge task for the government. LIC’s IPO has been called India’s Aramco moment. It will require huge commitment from retail investors.
If the IPO is delayed, it would send the government’s divestment revenue in this financial year to over a decade low.
But reports state that even as the divestment revenues touch a 10 year low, the government may be able to hold up its finances at least for this financial year, owing to higher tax revenues.
Like it or not, the IPO will be the defining market event of 2022. It will be a test of retail investors’ appetite.
The sharp correction in equity markets has surely brought the IPO market to a grinding halt. Retail investors who were excited for upcoming IPOs are changing their stance.
This year so far, only three companies have managed to launch their IPOs. In comparison, close to 10 companies came out with their IPOs during the same period last year.
In 2021, IPOs mobilised a record Rs 1.1 lakh crore. Many were estimating this year could top that record, all thanks to the mega LIC IPO. But the chances of that happening look slim now.
The BSE IPO Index, which tracks firms for two years since their listing, has plunged over 20% since the start of 2022. One out of every three IPOs this financial year is presently trading below its offer price.
Adding to worries is the correction in the unlisted space. According to reports, stocks of companies that actively trade in the unlisted market have come off between 20-40% in recent weeks.
If you still wish to invest in IPOs, be very clear about your strategy and expectations. It’s important to remember, like the stock market, IPOs too come with risks.
Due diligence is essential before investing in them. In the long run, a knowledgeable and well-informed investor always wins.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com