LIC lists at Rs 867, nearly 9 per cent lower than issue price

Just before the listing, brokerage firm Macquarie had set a target price of Rs 1,000 for LIC shares, slightly above the IPO price of Rs 949.
The ringing of the bell at the Bombay Stock Exchange marks the listing of Life Insurance Corporation of India on the stock market. (Photo | ANI)
The ringing of the bell at the Bombay Stock Exchange marks the listing of Life Insurance Corporation of India on the stock market. (Photo | ANI)

Shares of LIC hit the stock exchanges at a discount of nearly 9%. On the Bombay Stock Exchange, the shares of the insurer started trading at Rs 867 apiece as against its issue price of Rs 949.

At the time of the listing, it had a market capitalisation of over Rs 5.48 lakh crore, slightly more than the company's embedded value (EV) of Rs 5.40 lakh crore. Nevertheless, it entered the exchanges by being India's 5th most valuable listed company.

The listing was slightly poorer than what analysts at large were expecting, making no gains even for the policyholders who were allotted the shares at a discount of Rs 60. The shares witnessed initial recovery and hit a high Rs 920 in the first 15 minutes of its trading session.

The street was expecting a flat or up to -5% listing for LIC owing to current market sentiments being alarming and volatile following the global headlines and relentless selling by foreign investors.

"It has taken LIC 65 years to list. Have an optimistic view of the capital market despite the headwinds and ups and downs", said DIPAM secretary Tuhin Kanta Pandey at the listing ceremony

Commenting on the discounted listing, Subhash Chandra Garg, Former secretary, department of economic affairs, Finance Ministry, tweeted that LIC listed at a discount as suspected. "2 crore shares, about 10% of the issue, sold and bought in first 15 minutes. Possibly, there is sponsored buying," he said. He added that true value is less than half the issue price and it looks like LIC shares are rushing towards its right valuation.

Just before the listing, brokerage firm Macquarie had set a target price of Rs 1,000 for LIC shares, slightly above the IPO price of Rs 949.

It said that over the past several years, LIC’s market share in individual business (retail) has fallen due to lack of a diversified product portfolio and excessive focus on single premium and group business and that inherent volatility in LIC’s embedded value (EV) is also a big challenge given a large portion of EV constitutes marked-to-market unrealised equity gains.

"The call here is whether LIC will be able to diversify the product mix in favor of high margin in non-par products...While LIC’s distribution capabilities through its 1.3m strong agency force can’t be underestimated, there are several challenges to them scaling up the non-par business," the global brokerage said.

Macquarie had correctly predicted the fate of Paytm stock, which after the LIC had launched India's biggest IPO last year. Since listing, the fintech stock has plummeted nearly 63%.

The government, LIC's sole stakeholder, sold 22.13 crore share, or 3.5% stake, in the company, valuing the company at about Rs 6 lakh crore or 1.1 times of its embedded value. LIC's IPO helped the government to raise about Rs 20,557 crore. LIC's issue price was fixed at Rs 949 apiece for allotment to investors. The government had offered a discount of Rs 60 per share for its policyholders and Rs 45 apiece for retail investors and LIC employees.

Santosh Meena, Head of Research, Swastika Investmart, said that the current market volatility has weighed down on the insurance titan’s listing. However, the prospects for the insurance industry in India are good due to the under penetration of insurance and a long runway of growth; hence LIC being the largest player will be the beneficiary in the long term. Insurance is a business of scale, and there is no company to match the scale of LIC, so we suggest investors not be bothered about the negative listing and stay with the company for the long term.

He added, "Those who applied for listing gains can maintain a stop loss of Rs 800. New investors can take advantage of the dips to accumulate this share for the long term."

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