LIC IPO can disturb market balance: Jefferies

The insurance behemoth has arranged a draft paper for its share deal with the market control. The market is anticipating authorization soon and public bidding will likely start by mid-March

Jefferies India speculates the upcoming initial public offer (IPO) of Life Insurance Corporation, noted as the largest ever issue in the nation, has the possibility to disrupt the market balance.

The insurance behemoth has arranged a draft paper for its share deal with the market control. The market is anticipating authorization soon and public bidding will likely start by mid-March. The government, which accepts the entirety of stake in the company, is keen to complete the sale by the end of this financial year even after adverse markets.

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“Heavy foreign selling has been consumed by strong domestic buying, smoothening the market effect. Potential LIC IPO (estimated at $5-7 billion) can disrupt this equilibrium,” Mahesh Nandurkar, a critic at Jefferies said. He put in that, hence, it was a near term risk for the market.

Foreign investors have been clumsy in India for a while now. In the existing calendar year, they have revoked about Rs 52,500 crore from equities, data available at NSDL shows. This is possibly due to the surging dollar and dipping liquidity globally.

“The ample global liquidity scenario is even now under threat as high inflation is prompting policy reversals,” Jefferies announced. “The US Fed will end its QE in March and our US economist thinks that seven rate hikes of 25 bps are potential in 2022, followed by four in 2023.

Inflation has also flooded in India, exceeding the tolerance level specified for the Reserve Bank of India. It is probably set to rise further given the US dollar is trembling at $100 per barrel. But, the central bank has shown little preference to raise interest rates or boost financial tightening.

The global broker announced this stance probably puts the RBI behind the curve. But the central bank’s belief may differ very soon, it inferred.

“We note that helpful policy rates have already been shifted 50 bps higher than the 3.35 per cent reverse repo rate. However, RBI’s prolonged pause on headline rates and a surprisingly short CPI forecast for FY23 has sold the RBI a few months of time,” announced Nandurkar.