As share price dips 30 per cent, experts advice patience to LIC investors

Major blow to investors as market capitalisation of the state-run insurer has come down to Rs 4.19 lakh crore from Rs 6 lakh crore, wiping a total of Rs 1.81 lakh crore
Image used for representational purposes only
Image used for representational purposes only

NEW DELHI: The sharp correction in the share prices of LIC (Life Insurance Corporation of India) post its discounted listing on May 17 has dealt a major blow to its investors as the market capitalisation of the state-run insurer has come down to Rs 4.19 lakh crore from Rs 6 lakh crore (based on the upper end of its IPO price (Rs 949)), wiping a total of Rs 1.81 lakh crore.

Amid this gloom and doom, what should those investors, who are stuck with LIC shares at IPO price of Rs 949, do? According to equity market analysts, while this sharp decline is a big disappointment, investors should remain patient as the stock may stage a comeback. VK Vijayakumar, chief Investment Strategist at Geojit Financial Services said that LIC stock’s performance post IPO has been a big disappointment. He, however, says that it is too early to conclude that the share price won’t reach the IPO price in the next one year. If the Q1FY23 results of LIC are good, the stock may stage a comeback but it is likely to underperform if there is a rally in the market.”

In the fourth quarter of 2021-22, LIC reported a profit of Rs 2,409 crore (17% lower YoY) on May 30, which by no means is a small number. However, this could not lift the investor sentiments amid weak global cues and the stock’s downfall escalated afterward. Even MD Rajkumar’s commentary that they would be working to increase the share of non-participatory products in their portfolio to improve profitability and that they are now working on determining the crucial Indian Embedded Value (IEV) for March 31, 2022, that would be ready by June quarter could not arrest the downfall.

According to Yash Gupta -- Equity Research Analyst, Angel One Ltd, LIC is trading at very attractive valuations and it is suggested that investors should hold the stock at this level. LIC is not just an insurance company it also holds the investment in equities and that in the last 2 months we have seen a good correction in the Indian market so due to that also, we have seen a correction in LIC stock price, he added. The insurance behemoth made a whopping Rs 42,000 crore worth of realised gains from selling its equity investments in FY22.

Recovery in One Year?
It all depends on how the company reports numbers, and the guidance that they provide and how they deliver on the guidance, says Naveen Kulkarni, CIO, Axis Securities. “It’s a year’s journey. A year from now if they execute well and guide how the business prospects are, I think there are very good chances that money can be made in the stock,” says Kulkarni.

But what is ailing the stock is the target price assigned by global brokerages. The best target of Rs 930 given by Bank of America (BoFA) is still falling 2% short of the issue price of `949 while Goldman Sachs’ target price of Rs 700 is 35% and JP Morgan’s target price of Rs 840 is 13% away from the issue price. Most target prices are estimated for the end of the current financial year.

Bank of America in a report said there is good headroom for the growth of the national insurer. It is in the view that LIC stock is available at 47-70% discount in comparison to the private players. A global player in its segment, LIC can outperform going forward due to its widening penetration, analysts at BoFA noted. This is a big setback for investors who participated in India’s largest IPO ever launched. Since the stock hit bourses on May 17th at the discount of 8%, it has fallen about 24%.

When asked if it would be wise for the investors to exit the stock and invest in bluechips available at fair valuation post the recent correction, Vijayakumar said that switching to ‘bluechips that have seen sharp correction’ looks good in theory but may not work in practice. Bluechips, like leading banks, are good but they too may underperform if the present trend of sustained FPI (foreign portfolio investors) selling continues, he added. In 2022 so far, Nifty 50 has corrected by 11% with few stock correcting as much as 40%.

No faith in big-ticket IPOs?
The fall in share prices of LIC has again highlighted the dull show put up by companies that have launched big-sized IPOs. Share prices of Paytm have fallen 49% since listing in November last year while that of Coal India, which launched India’s third largest IPO in 2010, has given a negative return of 49% since listing. Shares of other big IPOs- Reliance Power, General Insurance and SBI Cards- are exchanging hands well below listing price.

According to Vijayakumar, The problem is not with ‘high profile IPOs’, but it partly lies with hype created around the stock pre-IPO and partly with the market condition after listing. “In the case of the new consumer-facing digital companies there was no fundamental basis for their high valuation since all of them except Nykaa were loss-making companies with no clarity on profitability. The market condition post-listing also is important. When the market turns bearish overvalued stocks correct sharply. Yes, investors should exercise restraint in the case of large-size IPOs, particularly when the secondary market sentiments are negative,” he said.

Massive Wealth Erosion

LIC Valuation at issue price Rs 6 lakh cr

LIC Current M-cap Rs 4.19 lakh cr

LIC Issue Price Rs 949

LIC Current Price Rs 662

Target Price Assigned (March 2023)

Bank of America Rs 930
Goldman Sachs Rs 700
JP Morgan Rs 840

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