The Life Insurance Corporation’s initial public offer, which is closing today (May 9), has been more or less well-received by every segment, barring foreign buyers. The retail and policy holder portions of the offer have been oversubscribed by 1.77 times and 5.51 times respectively. Overall the issue has been subscribed 2.16 times.
Even as the issue is closing today, we cannot escape the perception that the issue price of the state-owned insurance behemoth has been steeply priced and the interest of foreign buyers for the IPO has been largely muted. The IPO has received orders for 1.79 times the share on offer while a third of the issue size for qualified institutional buyers have remained unsold. The reasons for the disinterest of foreign buyers are not far to find.
Traditionally, FIIs are not great buyers of shares of state-owned firms. In the past also, they kept off PSU shares. Moreover, FIIs have been on a selling spree in India since October, 2021. The fast flight of FIIs’ money has added to the market volatility even though retail interest for markets has prevented a steep fall. The fast appreciation of dollars against Indian currency and the possibility of a tweak in the interest rates by the Federal Reserve amid rising inflation in the US have put the FIIs on the defensive.
Notably, the Reserve Bank of Australia effected a 25bps increase in interest rates. Further, an anticipation that major competitors of LIC in the private space such as HDFC Life Insurance and the SBI Life Insurance will hit the markets has kept the FIIs aloof. The poor interest of foreign buyers for LIC issue has been in sharp contrast to their elevated interest for private IPOs in India last year.
One97 Communications Ltd, the parent company of the digital payments platform PayTM, food delivery firm Zomato Ltd and Indian e-commerce start-up Nykaa had evoked a lot of FII interest. Another key dampener for FIIs’ interest in Indian stocks is the prolonged war between Russia and Ukraine. The conflict has affected the emerging markets (EM) more than the developed countries.
The EM economies are more dependent on imports from Russia and Ukraine than their developed counterparts, making them a less attractive investment option for foreign buyers. Emerging market economies like India are in the midst of an inflation boom catalysed by a rise in energy and food prices in these countries.
Last week’s rise in repo and cash reserve ratio rates by the RBI was a lone attempt by the central bank to contain the rising inflation in the country. Also, the reduction in the annual growth forecast by the International Monetary Fund and the World Bank of the Indian economy has not helped the matters either. All these factors and more may have combined to explain why FIIs have shied away from India's 'Aramco moment'.