LIC saves government from agony on one more day

The LIC and a few public sector banks purchased the almost unsold shares of Hindustan Copper Limited in thursday’s FPO. This is the second time in eight months that the LIC is pouring money into governments’ disinvestment programme.

                 In March this year, the last minute intervention by the LIC has rescued the ONGC offer for sale from a near collapse. The government collected nearly Rs 12500 crores from the ONGC disinvestment because of the help from LIC. 

                How far government can stretch LIC in the disinvestment process? Again, the continuous use of LIC money for the bailout of PSU disinvestment may affect the health of the public sector insurer.  The emerging trend from the market is that investors are not ready to actively participate in the IPO process because of the dull economic environment. Already there are signs that this year’s disinvestment target of Rs 30000 crores is unlikely to meet.

                The environment for fresh issues may be improved only if the RBI comes with an interest rate cut. Otherwise, in the context of high interest rate scenario, stock market may remain unattractive for investors. It is profitable for investors to put money in the high interest fixed income assets, rather than investing in low return equities. Hence, the disinvestment process should be postponed till the RBI comes out with a growth friendly monetary policy by end December.

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