What are the major concerns that you see in the LIC IPO at this point of time, when it is just about to launch?

In the stock market world, things are normally not as simple as they appear to be. The LIC IPO may look like a cakewalk but there are some real challenges. It is not just about the pricing, but also considering the macroeconomic environment that we are operating under and the global risks that have been highlighted in the recent past.

The first question is on the actual appetite for such a large IPO in this market context. In the recent past, much of retail and HNI money is either having negative MTM or they have already resulted in losses. This is true of most of the digital IPOs. Under these conditions, it is not too clear how much of enthusiasm there would be for an IPO of the size and magnitude of LIC. After Rs.65,000 crore is not a small amount, and it is unprecedented.

The biggest risk, in my view is the uncertainty surrounding the March Fed policy. Now, the irony is that the LIC IPO is slated to open in the second week of March and even the Fed policy is slated for the second week of March. Like it or not, they are going to clash. March 2022 is when the Fed is expected to trigger the first phase of rate hikes with a possible front-ending of 50 bps to begin with, before taking a more informed decision.

If you look back at periods like 2006 or 2016 when the Fed started rate hikes, there was a lot of volatility at that point of time, especially when it comes after a long period of accommodative stance. That is the problem now also. It remains to be seen, how willing QIBs would be, to commit funds amidst this uncertainty. LIC cannot avoid the overhang of Fed action, especially since FPI flows are largely dependent on the Fed action.

Finally, I am also a bit doubtful about how easy it would be push through the LIC IPO at these current valuations attempted. Let me explain my point. The mega valuation of around Rs.13 trillion or Rs.14 trillion is based on the embedded value (EV), which itself was tweaked by a whopping 6-fold in 6 months. This was managed by just reclassifying the shareholder funds and fundamentally there has been no difference at all.

How does LIC compare with peer group on valuations. Net profits of LIC are twice of SBI Life but market cap sought is 10 times of SBI Life. LIC’s value of new business (VONB) per share is one-fourth of SBI Life but the total cost ratio is 2X. Agreed that LIC’s AUM and premium income are substantially higher, but what about relative profitability? And what if some of the Rs.72,000 crore of tax disputes gets real. There are too many question marks.