Krushna Pednekar
BUDGET 2020 which was announced by Nirmala Sitharaman on 1st February 2020, has mentioned, that the Government will sell a part of its holdings in Life Insurance Corporation of India (LIC). The Budget day has some highlighted points which include income tax slab, abolishing the Dividend Distribution Tax and Selling of the stakes in IPO
The government who holds 100 % of LIC has spoken about selling its part of a holding through IPO (Initial Public Offering) if you aren’t aware about what is an IPO?
Basically if any company wants to get listed in the stock market and have some plans of raising funds. Those funds are used by the company and the reason behind raising the funds is also mentioned. The reason could be reducing the debts or expansion of the business. The company then does the formality work and SEBI (Security Exchange Board of India) scrutinizes the documents and later gives a green or red signal.
LIC on an average invests Rs.55000 to 60000 crore every year through the stock market. And if LIC comes with an IPO, then it could be a top listed company in terms of Market valuation. The corporation has good holdings in many listed companies.
Reliance and TCS would have to take a step down in terms of market valuation if LIC comes into the picture. The reason is, if you check the FY 2018 profits of LIC it is around 48600 crore and with a good AUM (Asset under management). The corporation has good holdings in many listed companies.
Listing of LIC would be a profitable deal for the short term as well as long term investors. As the investors would be looking for a good profit of at least above Rs. 10000 on each lot, where one lot size would be needing an investment amount of Rs.15000. The bulls will take over the grey market premium.
Retail investors would be looking forward to this deal as the profit is higher in the short term. The ones who did not get the Ujjivan Ipo where the profit on the first day was Rs. 10000 those investors would look forward for this IPO and will try to put the possible investment amount. Who does not want a high return on investment in 4 days on such a low investment amount? Even your gold investment won’t give you this much profit in 4 days.
Though the investors have booked a loss in the bloodbath today, which wiped out 4 lakh crores wealth from the market, the investors would still look forward for this IPO hoping to get some profits in the future.
For the government to meet FY 21 fiscal deficit target a lot depends on the smooth progress of LIC IPO.
Krushna Pednekar
Vivekanand Business School