Turbulent stock market conditions triggered by Russia’s invasion of Ukraine have created a piquant situation for the government with regard to the initial public offer (IPO) of Life Insurance Corporation of India (LIC), which was all set for launch this month. Markets are in turmoil globally with investors stampeding out of stocks into safe haven assets such as gold. Should the government go through with the IPO now or should it defer the launch? In an interview with this newspaper earlier this week, Finance Minister Nirmala Sitharaman said that she is not averse to reviewing the timing but in an indication of the dilemma that she faces, Sitharaman also alluded to the tough work that has gone into preparing LIC for the public offer and how stopping it now will be a difficult decision.

A decision to postpone the launch will be the relatively easier and less-risky option. But that would mean that the juggernaut that was rolling along, to borrow an analogy from the Finance Minister, will have to be abruptly stopped and there’s no saying when it can be set in motion again. While the budgetary implications of an aborted IPO may not be significant considering the sharp uptick in revenue growth this fiscal and the large cash balance of the government, it will certainly be a big setback to the disinvestment programme. It will also be a fruitless end to a year’s hard work that has gone into preparing LIC for listing. LIC has been converted into a Board-managed corporate entity, its accounts cleaned up by bifurcating shareholder and policyholder funds, net worth shored up and its surplus distribution policy reworked for a better balance between policyholders and shareholders. Campaigns have been mounted to whip up investor interest and road-shows done for foreign participants. It is also no simple matter for any government to summon up the political will to disinvest LIC, with many vested interests working to preserve the status quo. These factors argue for the government to go through with the offer now.

The risk with such a decision is that it may not attract excess subscription. The likely size of the offer at between ₹50,000-70,000 crore is the biggest ever and it surely needs the support of foreign investors to succeed. Short-term investors and those looking for listing day gains may not have the appetite to invest in prevailing market conditions. But investors such as pension funds and sovereign wealth funds may find LIC an attractive bet as they have a long-term outlook and can look through short-term market turmoil. LIC is, after all, a marquee financial institution with a 64 per cent share of India’s life insurance market and a massive investment book of ₹40 lakh crore. The domestic investor base is not shallow too and can be roped in with attractive discounts for retail investors and policy holders. A higher quota can also be carved out for them. The key, of course, is whether the government has the stomach to absorb a lower valuation. The decision is not just financial but political as well because there will be instant reactions from the Opposition that “family silver” has been short sold. Yet, that may be the best way to sell the IPO now. What’s lost now in valuation can always be made good in the next tranche of disinvestment if LIC catches the market’s eye.

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