The Economist - UK (2022-05-07)

68 Finance & economics TheEconomistMay7th 2022

India’slargestIPO

Sellingoffthe

piggybank

I

n1956,aspartofitsexperimentwithem­

bracingsocialism,IndiacreatedtheLife

InsuranceCompanyofIndia(lic) byna­

tionalising and lumping together 245

firms.Theexperimenttooka whiletocon­

clude.In 2000 Indiaallowedprivatefirms

toselllifeinsuranceagain.Twodecades

lateritissellinga 3.5%sliverofliconthe

publicmarket,afirststepinwhatisin­

tendedto beafull privatisation.Orders

willbetakenfrominvestorsbetweenMay

4thandMay9th.Tradingisduetocom­

menceonMay17th.

Thescaleoflicissuchthatthesaleof

eventhistrivialstakewillbringin$2.7bn,

makingitthefifth­largestpublicoffering

oftheyeargloballyandthelargestinIn­

dia’shistory.Oneofthereasonsstatedby

thecompanyforsucha smallpercentage

beingsoldisthatsellingmoremightcrowd

outinvestmentinotherprivateandpublic

firmsinthecountry’scapital­constrained

market.Outofsimilarconcerns,market

regulatorsarealreadyconsideringwaiving

a provision that currently requires the

dominantshareholderofalistedfirmto

reduce its ownership stake below 75%

withinfiveyears.

Oncelisted,licwillhavea marketvalu­

ationofaround$80bn,makingit thefifth­

most­valuablelifeinsurerintheworld.Yet

morestrikingishowthoroughlylicdomi­

natestheIndianmarket.Itsuttersuprema­

cyhasnoequivalentinanyothermajor

country:lichasa staggering286mpolicies

inforceandcollects64%ofallofIndia’s

writtenpremiums(theshareofthelargest

insurerinBritainis23%; inChinaitis

21%).Thefirmhas$507bninassetsunder

management,tripletheamountofits 23

privatecompetitorscombined.

Although such dominance gives the

firmanditsproductsunmatchedscale—a

bigadvantageinanindustrythatrunson

trust—the 659­page listing prospectus

makesitclearthattherearecracksinlic’s

armour.Premiumshavebeengrowingby

9%annuallyoverthepastfiveyears,a good

performancebutonethatpalesincompar­

isonto itsIndian competitors,many of

whichhavebeengrowingattwicethatrate.

Andgovernment tiesmaycomewith

costs.Investorshavelongsuspectedthat

licisoftenrequiredtoinvestatleastsome

ofitsriverofpremiumsintheinterestsof

thestateratherthaninthepursuitofpro­

fits,quietlyseedingproblems.Includedin

theprospectus’s 47 pagesofriskfactorsare

M UMBAI

Indiabeginstheprivatisationofits

hugelife-insurancecompany

I

n early aprilwepointedtoprelimi­

nary evidence that the Russian econ­

omy was defying predictions of collapse,

even as Western countries introduced

unprecedented sanctions. Recent data

further support this view. Helped along

by capital controls and high interest

rates, the rouble is now as valuable as it

was before Russia’s invasion of Ukraine

in late February (see top chart). Russia

appears to be keeping up with payments

of its foreign­currency bonds. 

The real economy is surprisingly

resilient too. True, Russian consumer

prices have risen by more than 10% since

the beginning of the year, as the rouble’s

initial depreciation made imports more

expensive and many Western companies

pulled out, reducing supply. The number

of firms late on their wage payments

seems to be growing. 

But “real­time” measures of Russian

economic activity are largely holding up.

Total electricity consumption has fallen

only a smidge. After a lull in March,

Russians seem to be spending fairly

freely on cafés, bars and restaurants,

according to a spending tracker run by

Sberbank, Russia’s largest bank. On April

29th the central bank lowered its key

interest rate from 17% to 14%, a sign that

a financial panic which began in Febru­

ary has eased slightly. The Russian econ­

omy is undoubtedly shrinking (see bot­

tom chart), but some economists’ predic­

tions of a gdpdecline of up to 15% this

year are starting to look pessimistic. 

Even before the invasion Russia was a

fairly closed economy, limiting sanc­

tions’ bite. But the biggest reason for the

economy’s resilience relates to fossil

fuels. Since the invasion Russia has

exportedatleast$65bn­worthoffossil

fuelsviashipmentsandpipelines,sug­

geststheCentreforResearchonEnergy

andCleanAir,a think­tankinFinland.In

thefirstquarterof 2022 thegovernment’s

revenuesfromhydrocarbonsroseby

over80%yearonyear.OnMay4ththe

EuropeanCommissionproposeda ban

onimportsofallRussianoilthatwould

comeintofullforcebytheendofthe

year.Untilthen,expecttheRussian

economytocontinuetotrundlealong.

Russia’seconomy

‘Tis but a flesh wound

Russia’s economyisbackonitsfeet

Fuel in the tank

Sources:RefinitivDatastream;Goldman Sachs

*High-frequencymeasureofeconomicactivity

160

140

120

100

80

60

Feb Mar Apr May

Roubles per $, 2022, inverted scale

25

0

-25

-50

-75

2020 21 22

Current economic-activity indicator*

% change, annualised

Emerging markets

Developed markets Russia

ment has mandated that it must hit its gdp

growth  target  of  5.5%  but  many  analysts

have  downgraded  their  outlook  for  eco­

nomic  activity  in  the  country  this  year.

Some  economists  believe  real  growth  in

China  in  2022  will  only  reach  2%  (even  if

official statistics say otherwise).

Markets have reflected the gloomy sen­

timent.  The  Shanghai  Composite  Index  is

down by about 7% in a month. It dipped be­

low 3,000 points in late April, a threshold it

had not gone under since July 2020. Inves­

tors  have  dumped  yuan­denominated  se­

curities at a record pace (see chart).

The state is fighting back against plum­

meting  confidence.  At  a  meeting  on  April

29th  the  Politburo,  a  top  decision­making

body, pledged to increase investment in in­

frastructure  this  year  in  order  to  boost

growth. Leaders also said they would nor­

malise  regulation  and  support  the  devel­

opment of internet­consumer companies,

such  as  Alibaba  and  Tencent.  The  state­

ment marks the first strong sign of central

support for such groups since the start of a

regulatory crackdown that began in 2020.

Politburo  memos  are  usually  released

after  Chinese  markets  close.  This  one

dropped  while  stocks  were  still  trading,

leading to a surge in share prices for some

tech groups. This was probably done inten­

tionally in the hopeofa positive market re­

sponse  amid  a seaof  doom,  gloom  and

mounting panic. n