Come March, and the investors will know whether the Ides Of March are valid as the government embarks on the largest IPO ever witnessed to date. IPO refers to Initial Public Offering. When a company raises capital from the public or proposes to do so, it needs to list its shares and stock in the market, called a ‘primary market.’
A primary market is where a buyer and seller meet without any intermediaries. This way, the unlisted company or those held previously only by private equity is listed in the stock market where its shares are traded.
However, the market is exalted mainly by the magnanimity and the design of the proposed LIC IPO, which has attracted a mixture of wait and see and palpable emotions. LIC or Life Insurance Corporation is the numero uno or the undisputed king of the Insurance market.
Something not synonymous with Government sector utilities. However, the seamless approach and pro-people outlook of LIC has made it the market player beating the likes of HDFC, SBI and Bajaj.
The government has proposed a 5% stake from the 623.49 crore shares to be sold via the IPO, while the remaining 95% remains with the GOI. The biggest IPO in India was witnessed only some months ago when Paytm mopped up INR 18000 crores when it went public.
Hence owing to the government and analysts’ outlook, the “meagre” 5% stake will help the Government mop up anything between 50,000 lakh crore to 1 lakh crore in earnings!
This has large scale benefits for the government. Firstly, it will help push down the rising fiscal deficit. As per the S&P ratings, the fiscal deficit will rise to 11% in FY 21’ from 7.8% in FY 20’. It will also help bring more accountability and transparency within its fold as information will have to be made available to the subscribers and stakeholders alike. This, in tune, will bring better Corporate Governance standards.
As a piecemeal token, the government has also reserved stakes to various stakeholders who may want to participate, with policyholders having 10% reserved while LIC employees have 5% reserved for their participation.
The IPO will also enable the government to gain a massive fillip in its quest to rake up INR 78,000 crores towards its disinvestment proceeds, with another debt burden in the form of Air India also gone; this will help the government get adequate legroom.
The Mother of all IPOs in India is said to have varied emotions; however, it is not unusual to see future market shares being traded and is in the right direction. However, one needs to remember that the government has to play the role of an enabler. This means that the fear and misinformation needs to be addressed via due diligence to the policyholders, and business needs to be conducted effectively to minimise losses.