Thread by @sritara

THREAD on #LICIPO

1 As the LIC share lists today, I ask a simple question: will the omniscient “market” reveal the true worth of India’s biggest life insurance company? I argue that it is pointless to argue over this. This thread explains.

2 If the share “pops” on debut day will it soothe the sagging fortunes of the stock markets? Or, if it slips close to the issue price of Rs 949, would it justify the gross undervaluation of the share in India’s biggest-ever privatisation scandal?

3 I argue that this is pointless. This is because the “market” for the LIC share today is unrecognisably different from the one that existed two months ago. It is almost as if they were two entirely different persona. thefederal.com/business/gross…

4 Rising inflation, interest rates, the turmoil in forex markets — not just their RATES in different countries, but their differentials across nations — have caused “investors” to turn extremely risk-averse.

5 So, given the rising interest rates, high inflation and the decline in the value of the rupee investors are betting not just on the price of the LIC share but also on these other variables which have a bearing on the worth of the share.

6 This change in the foreign investor’s stance in a short period is a huge factor. They have been net sellers in the Indian markets for a while. When IPO was considered in early 2022, foreign anchor investors were supposed to be “very keen”.They were almost absent in this IPO.

7 Instead, domestic players, particularly mutual funds, salvaged the IPO in the anchor investor category. Significantly, funds associated with 2 bank biggies — SBI and ICICI — cornered 1/3 of the allocation for mutual funds, which accounted for >70% of the IPO meant for anchors.

8 The loud claim that the #LICIPO would result in shares being widely dispersed thus lies in tatters. Now, let us look at how the almighty “market” would value LIC if the share lists at close to its issue price.

9 At Rs 949/share, the market capitalisation of LIC would be about Rs. 6 lakh cr. Now recall that on the day LIC filed its DRHP in Feb, its market capitalisation was expected to be about Rs. 22 lakh cr. In comparison, Reliance, the Big Boss in the market, was worth Rs. 16 lakh cr

10 That valuation by the “market” would have placed LIC right at the top of the pile among Indian corporations in terms of its worth. If the share floats at close to its issue price today, how come the market values the same company at a 72 % discount today, just weeks later?

11 There is no point in looking to the LIC to answer that question. The answer lies in what is construed as the market, or in the construct that regards the market to be God, all knowing and all-powerful.

12 The simple truth is that the “market” is defined by its participants. Since most foreign participants have exited, the rump of what remains has been allowed to dictate what the intrinsic worth of LIC, one of the biggest life insurance companies in the world, is.

13 The reality is that the IPO has caused lasting damage to the LIC. It is extremely likely that the valuation of the shares in the IPO would serve as a “benchmark” for subsequent floats. In any case, the “market” would insist on this.

14 The gross undervaluation of the LIC share which has potentially caused a loss of more than Rs 50,000 crores would then be the original sin from which LIC is unlikely to ever get redemption. That is the consequence of India’s biggest-ever privatisation scam. (END)

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