LIC Receives SEBI Nod for Its IPO

SEBI, the capital market regulator in India, approved the Draft Red Herring Prospectus (DRHP) of the LIC IPO. The Indian Government will sell a 5% stake in the Life Insurance Corporation of India to collect a mammoth Rs 63,000 crore. Moreover, the Government currently holds a 100% stake in the giant life insurance company. The LIC IPO is the biggest in the history of the Indian stock markets. It is an offer for sale (OFS) by the Indian Government with no fresh issue of shares by the LIC. Post listing LIC’s market capitalisation could rival top companies like TCS and RIL. As SEBI clears the LIC IPO, the ball is now in the Government’s court to fix the LIC IPO date. 

SEBI approves the LIC IPO

The LIC IPO received SEBI’s approval after only one round of clarification from bankers. LIC submitted a massive 650-page prospectus for SEBI’s scrutiny and received approval within 22 days. 

The Government plans to sell 31 crore LIC equity shares according to the DRHP filed with SEBI. A part of the LIC IPO is reserved for anchor investors, while 10% of the LIC IPO is reserved for LIC policyholders. 

As the LIC DRHP has received SEBI approval, LIC will soon launch its IPO. However, the LIC IPO may get postponed to the next financial year. 

The Government has not fixed the LIC IPO date

LIC may have got the SEBI nod, but the Government has yet to fix the LIC IPO date. Moreover, the Russian invasion and bombing of major Ukrainian cities have increased stock market volatility. The Government will have to take a call on the IPO date of India’s largest insurer in the best interests of the investors.

The Government planned to launch the LIC IPO around March 10, 2022. However, the current geopolitical tensions mean the Government may defer the LIC IPO to the next fiscal year.

Many investors do not prefer investing in Initial Public Offerings (IPOs) when stock markets are highly volatile. Moreover, many investors would have seen their equity portfolios dip significantly after the Russian invasion of Ukraine and would not be keen to invest in the LIC IPO. 

The Indian economy is on edge as International Crude Oil prices rush towards $130 per barrel. It fuels high retail inflation as domestic petrol, diesel and LPG prices are bound to increase. For instance, every $10 rise in crude oil prices per barrel adds 40 to 60 basis points to the Consumer Price Index (CPI). 

The RBI could hike interest rates later this year to control rampaging inflation which could negatively impact the economy and the stock market. In this scenario, the Government could postpone the LIC IPO date to the next financial year when the economy could bounce back. 

The Government planned to sell a 5% stake in LIC to collect Rs 63,000 crore to achieve the revised disinvestment receipt target of Rs 78,000 crore. However, the Government will struggle to get there if it doesn’t launch the LIC IPO in this financial year. In a nutshell, the Government will keep investor interests in mind when it fixes the date for the LIC IPO. 

For any clarifications/feedback on the topic, please contact the writer at cleyon.dsouza@cleartax.in

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