Ukraine war threatens India's blockbuster IPO

At 31, New Delhi-based Sahil Bhalla is among the new crop of market-savvy youngsters who have taken to investing in capital markets in a big way in the last couple of years.

Bhalla is an avid investor, and these days he is watching the market closely. The reason is the initial public offering (IPO) of the state-owned insurance behemoth Life Insurance Corporation of India (LIC), which India's government was originally slated to bring soon.

With over 280 million policies, LIC is India's largest insurance company. It is owned by the Indian Ministry of Finance.

Some 66 years after its establishment, more than 20 other insurance firms now operate in India. And yet, LIC still holds 61.4% of the market share in terms of premium paid.

The government appeared all set to go for the IPO in March — at least, until a few days ago.

Slated as India's biggest-ever IPO

The corporation is a behemoth, with total assets worth over $500 billion (€460 billion). In the financial year 2020-21, it raked in over $90 billion in net total income.

With more than 1.3 million agents on its roll, LIC earned nearly $16.8 billion through new premiums alone.

It is India's only entry in the elite club of the top five insurers of the world in terms of life insurance premium.

The government's efforts behind listing the company on the stock market are part of its target of disinvestment in state-owned companies.

Aimed at plugging India's rising budgetary deficit, the government has announced a $10.4 billion asset sale program and LIC is its mainstay.

Indian Finance Minister Nirmala Sitharaman announced the IPO in her budget speech in February 2021. It took the government nearly a full year to file the draft red herring prospectus (DRHP) with the capital markets regulator.

The DRHP, filed on February 13, put the corporation's embedded value at over a staggering $71.2 billion. Through the IPO, it wants to sell off 316.25 million shares, or 4.99% of its post-offer, paid-up share capital.

LIC is expecting to potentially raise $8 billion, making this India's largest IPO ever. Up to 10% of the IPO issue size would also be reserved for policyholders.

Market conditions weigh on investors' minds

Russia's war in Ukraine has spooked capital markets across the world, and India is no exception. When Russia invaded Ukraine on February 24, India's benchmark index, the Bombay Stock Exchange Sensex, fell by over 2,700 points.

This appears to be making the government develop second thoughts on the timing of the IPO.

"Ideally, I'd like to go ahead with it because we'd planned it for some time based purely on Indian considerations," Finance Minister Sitharaman told a newspaper. "But if global considerations warrant that I need to look at it, I wouldn't mind looking at it again."

Prevailing market conditions have also dampened the excitement of retail investors like Bhalla. "LIC IPO would have been great for the long term. The company has a strong business and culture and it gives good dividends," he said.

"But right now, market optics aren't great. The sentiment is down. I will hold off, for now."

While Bhalla does not own an LIC policy, Suyash Aditya, also 31, does own one, but he, too, is no longer excited about the IPO. "Markets are very unstable right now and this is just not the right time for new risks," Aditya told DW. 

Market analysts are divided in their opinion about the timing of the IPO. While many have been saying that this is not a good time, some remain tight-lipped.

The financial fund manager of a Mumbai-based investment firm told DW on condition of anonymity that for an IPO of this size, conditions in the capital markets need to be pristine, which is not really the case right now.

However, he also said that if the government had completed its preparations for the IPO then it would be better to get it done with, because when and which external factor would affect the markets next could never be predicted.

A classic case of a strategic asset sale

The irony of a state-owned insurer trying to get listed on the stock market is not lost on many. Arun Kumar, the Malcolm Adiseshiah Chair Professor at the Institute of Social Sciences, said the government has always used LIC for serving various strategic interests like investing in the stock market when it was down, or picking up stakes in other state-owned companies that were being disinvested but there wasn't enough interest in them.

Apart from that, it was also helping the poor and the lower middle class because of the cross subsidy from the larger policies. Kumar said that after listing, LIC would have to follow the market logic and these objectives would suffer, which was not good for an economy that was not rich.

Nevertheless, the government seems to have banished these doubts long ago before giving the green light for the IPO. So it's not a question of will the government bring it or not, anymore. The only question now is when it will happen.

Edited by: Hardy Graupner