Mumbai: Postponement of the initial public offering (IPO) of insurance major LIC to the next fiscal could affect bond prices then and would also be a negative for the rupee, which is under pressure because of the war in Europe.
The government on Wednesday raised Rs 38,000 crore, compared to Rs 26,000 crore it had planned earlier, ostensibly to make up for delay in collections from the LIC IPO. In February, it had also cancelled two scheduled G-secs’ auctions aggregating Rs 48,000 crore. Market players now feel that the Centre may meet this year’s funding targets by raising higher amounts through the four remaining treasury bill auctions this month.
“Postponement of the LIC IPO could add pressure on the rupee, which is already under strain because of the war. After the IPO was announced, FIIs had taken positions in the offshore forward market in anticipation. They may now reverse the position,” said K N Dey of United Financial Consultants, which advises businesses on foreign exchange. The rupee did breach 76 in the offshore forward market, but was firmer in the spot markets. It ended at 75.71 compared to 75.34 close on February 28.
“The delay in LIC IPO may not lead to a spike in bond yields but, combined with rising crude oil prices, that may force the government to cut duties on it and lower taxes on petro products, there could be spike in 10-year yields next month onwards,” said a debt market player. A cut in fuel taxes to control prices may result in higher borrowings in 2023.
In the forex market, the LIC offer was expected to bring in foreign flows of $4 billion.
