Investment banking company Jefferies India believes that the upcoming LIC IPO, pegged as the largest ever IPO in the country, has the potential to disrupt market balance.
LIC has already filed the draft prospectus with market regulator SEBI earlier this month, and is aiming for IPO roll out in March 2022.?
The government, which owns the entire stake in LIC, is keen to timely launch the IPO within this financial year in order to move closer towards its disinvestment target of FY2021-22.
Mahesh Nandurkar, an analyst at Jefferies said ¡°Heavy foreign selling has been absorbed by strong domestic buying, smoothening the market impact. Potential LIC IPO can disrupt this balance¡±. He added that, hence, it is a near term risk for the market, as per ET.
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As per data available at NSDL, foreign investors have been bearish on India for a while now. In the current calendar year, foreign investors have withdrawn about ?52,500 crore from equities.?
This is likely due to the surging dollar and dipping liquidity globally.
As per ET, inflation has also surged in India, surpassing the tolerance level stipulated for the RBI. It is likely to rise further, as the US dollar is hovering at $100 per barrel mark. But, RBI has shown little inclination to raise interest rates or increase monetary tightening.
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Another risk to the market is the prospect of 'twin' deficits fiscal and current account - simultaneously over the next 12 months. The centre's 6.4% FY23 fiscal deficit target has already caused concerns in the bond market.
¡°The import surge is quite broad based and recovering local demand, along with high commodity prices, could keep the current account under pressure. We estimate the current account deficit at 2.5% of GDP in FY23, i.e. a 10-year high,¡± said the analyst at Jefferies.
Nandurkar, also said ¡°The recent crude oil spike, meanwhile, could result in a ?6-8/ltr hike in auto fuels, once the state elections get over in early March. These hikes would add about 30-40bps to the CPI. Potentially higher CPI might drive RBI to change its dovish stance over the next 1-2 quarters.¡±
Over the past few weeks, the ruling government of India has paused the hike in fuel price, which is believed to be done due to ongoing elections. The fuel prices have not been revised in the last 110 days, as per ET. But after the state elections wrap up in the first half of next month, fuel prices may again rise, especially with soaring rates globally.
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