Image used for representation. (File Photo| PTI)
Image used for representation. (File Photo| PTI)

Lessons from LIC’s poor show on the bourses

True, unfavourable equity market conditions did play spoilsport but putting the entire blame on markets for the valuation cut would be stretching the limits of logic a bit too far.

The capital market could be a tough task master. Life Insurance Corporation of India (LIC), the country’s biggest life insurance company, may have realised that now. LIC, which is also a government-run company, was expecting the market to give it a valuation of Rs 10-12 lakh crore when it first began the listing process. But, finance ministry officials who were overseeing the whole process realised their folly only when the company approached investors ahead of the listing. In the end, the government slashed valuation by almost half to Rs 6 lakh crore.

True, unfavourable equity market conditions did play spoilsport but putting the entire blame on markets for the valuation cut would be stretching the limits of logic a bit too far. The LIC IPO is languishing at a valuation of less than Rs 4.5 lakh crore now, barely a month after it was listed. This is despite the fact that LIC is a market leader by a large margin with 64% share in terms of total premium. A concerned government now says it is looking for ways to fix the loss of investor confidence in the company.

However, walking the talk is not easy. Remember the listing of Coal India, a monopoly player in coal mining in India? Its share price is currently trading 43% lower than its listing price. These debacles offer hard lessons for companies as well as the government. Equity markets do not necessarily ‘reward’ a company for being the market leader or a monopoly, unless it shows continuous improvement and efficiency. As long as you are a non-listed company, you can get away with a lot of inefficiencies, inanities and opacities.

But once you get listed, and submit to the regulatory supervision of Securities and Exchange Board of India and shareholders’ scrutiny, you cannot get away with any of these. Investors are quick to punish you for any misstep. Investors can be irrational at times, but they do correct their stance sooner rather than later. They will strongly back good performers but will be brutal with duds. Many new-age technology firms, which tried to take advantage of the easy money in the system in 2020–21 by getting listed at high valuations, are now discovering the harsh truth.

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