Learnings from LIC must guide PSU stake selloffs
Insurance Corporation (LIC) of India initial share sale in May last year would be a disappointed lot today. As against the issue price of ₹949 apiece, the stock closed at ₹605 on the BSE on Monday. This implies that state-run LIC has lost more than a third of its value since then.
So, what went wrong? To be sure, shares can drop for a variety of reasons, including market trends beyond a company’s control. But many investors would’ve been left with the impression that the issue was overpriced. Since retail investors tend to repose faith in government enterprises, and LIC especially was a fancied business for its dominance of India’s insurance sector, a high valuation may have got overlooked in the buzz over its stake sale.
It suited the government. After all, the greater the valuation, the higher its disinvestment revenue. The downside is that the experience may have left investors somewhat wary of government stake issues in general.
While this could cast a shadow on the Centre’s disinvestment programme, it also argues for a publicly noticeable change of tack. Although even a modest target of ₹51,000 crore worth of stake sales is proving steep this fiscal year, the government would do its selloff agenda a big favour by signalling that offering well-priced shares is its primary aim, not stuffing its coffers. On Monday, Mint reported that the government is considering asking public sector units (PSUs) for big dividend payouts and may seek a special bounty from state-run oil companies that have been flush with cash.
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