RBI sees LIC public issue as a chance to deepen markets, says correct timing is crucial

The initial public offering of Life Insurance Corporation of India presents an opportunity to deepen the capital markets and must be timed correctly because its success hinges on the response of retail investors, according to an article published in the Reserve Bank of India bulletin.

“The LIC IPO is set to be the biggest IPO ever in India, and hence, correct timing of the IPO is crucial,” the writers said in their article on the State of the Economy in the March edition of the bulletin, published by the RBI’s Department of Economic and Policy Research on March 17. “With 35 percent of the issue size reserved for retail investors, their response is critical for the success of the LIC IPO.”

The LIC share sale, which may fetch the government Rs 60,000 crore, was expected to open in March. However, factors such as the Russia-Ukraine war, changes in the US Federal Reserve’s policy, fears of another Covid wave and stock market volatility are said to have likely delayed the public issue.

According to the authors, the LIC IPO presents a fresh opportunity to further deepen the reach of the equity markets and attract more investors.

“LIC’s huge policyholder base has the potential to bring a large number of new investors to the capital markets who have historically relied on traditional saving products,” they said.

The deepening of the capital markets is also vital for the government’s divestment plans, according to the article. It is important to inculcate investors’ trust in key market infrastructure institutions.

According to documents filed by LIC, up to 316.2 million equity shares held by the government, equivalent to a 5 percent stake in the company, will be offered for sale.

The government has been promoting the LIC IPO and has amended the law to allow foreign investors to participate in the share sale.

The IPO launch date is now likely to be delayed till mid-April, according to a recent report by Reuters. The government has time till May 12 this year to launch the IPO. A delay beyond this date will mean LIC will have to file documents afresh with the regulator.