Geopolitical state of flux

It would be naïve to believe that any big IPO of the size and complexity of LIC can be pushed through in this condition of geopolitical flux. The Ukraine Russia war has already impacted trade routes, seen sanctions and spiked oil. It is not yet clear how the situation will pan out as Russia is not willing to relent. While a full-fledged global war does not look likely, the situation could stay tense and LIC IPO is literally running against time. 

Oil could go through the roof

High oil prices are never good news for the Indian economy as she still relies on oil imports for 85% of daily needs. With Crude at nearly $100/bbl, there is a risk to India’s fiscal deficit, current account deficit plus the specter of inflation. Both, inflation and current account deficit are very vulnerable to a spike in oil prices. As Brent crude continues to hover near $100/bbl levels, the rupee is likely to get volatile and that would make FIIs, and even domestic investors, wary about betting big money on the LIC IPO. After all, weak rupee means that the dollar denominated returns are going to be much lower than the optical returns. 

FIIs are still selling heavily

While oil and geopolitics are major risks to the Indian economy, the one factor that will work against rushing the LIC IPO this year is FII selling. In FY22, FIIs sold $29 billion in equities, of which $22 billion of FII selling has happened since October 2021. FIIs are concerned about India valuations, bond yield risk, sharp spikes in inflation  and rising oil prices. It is very unlikely that the FIIs would see change of heart in the near future. FIIs have been aggressive investors in IPOs in FY22, but a lot has changed. The global implications of the Ukrainian war and the performance of digital IPOs post listing has made a lot of FIIs wary of IPOs. Therefore, the enthusiasm of FIIs to invest in LIC IPO may be limited. 

Better put it off to FY23

When the government announced plans to complete the LIC IPO in FY22, they must have surely kept a Plan-B in place considering the volatile situation. It is now time to action Plan-B. The IPO will have to close before 15-March, if the listing has to happen in the current fiscal. That leaves the government just 10 days to put all the bells and whistles in place and open the LIC IPO. That would be impractical, to say the least. The best option is to put off the LIC IPO to the next fiscal. Disinvestment targets are statements of intent and not carved in stone. Pushing the LIC IPO to FY23, gives more time and planning room! ©