Will LIC IPO help make volatile stock market stable?

If all goes well, then the country will witness the filing of draft red herring prospectus (DRHP) for the country's biggest ever IPO of the life insurance behemoth, Life Insurance Corporation (LIC) of India later this week. The million-dollar question arises if the forthcoming LIC IPO help make volatile stock market stable?

It needs to be looked into from various perspectives. First, the government is relying heavily on meeting the disinvestment target for the current fiscal through this IPO. Not to mention that the government has revised its disinvestment target to Rs 78,000 crore from the earlier projection of Rs 1.75 lakh crore. Even if the government, which is the 100 per cent owner of the Corporation as of now, dilutes five per cent of its stake through the ensuing offer for sale (OFS), the size of the IPO is likely to be as high as Rs 50,000 crore. Again, if it happened so, then it will definitely meeting the revised disinvestment target for the current fiscal.

Coming on the stock market, it is difficult to say how will it get affected. Though harking back into the history, one finds that whenever the biggest IPO of the time has hit the market, it was not welcomed by the market. We have examples of Reliance Power (2008) and PayTM (2021). In 2008, when Reliance Power launched its Rs 10,123 crore IPO, the BSE Sensex crashed from a high of 21,206.77 to a low of 7,697.39. It took almost five years for Sensex to regain its position. Yes, the Lehman Brother crisis, which took place during the year, was also responsible for the nosedive of the Sensex.

On a similar note, when Paytm's (One97 Communications) Rs 16,600 IPO was launched last year, its shares crashed sharply. The only respite was that the market almost remained intact this time, the only common reason in both the cases are the overpricing of shares.

In fact, this was the reason for the listing of the two state run players on the insurance space in the past - GIC Re and New India - which would have bombed had the government not asked LIC to bail them out at the eleventh hour.

However, this time the question was that there was no such 'milching cow' in the hands of the government to bail out in case of crisis at the stock market while bringing LIC under the hammer.

Again, there lies a strong hidden fact here which may go well. DIPAM has adroitly reserved 10 per cent of allotment of shares for the 30-crore odd policyholders of LIC to participate in the mega IPO. By doing so, the government has killed two birds with one arrow. First, the policyholders will turn as shareholders which will also help increase the base of the retail shareholders in the country, a dream the country had long been nourishing the dream for. Secondly, it will ensure that the LIC IPO sails through in the otherwise volatile market.