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India’s LIC Will Bounce Back From Lukewarm IPO: Analysts

The stock market debut of the Life Insurance Corporation of India received a cool response from investors with market volatility and claims of over-pricing blamed

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LIC IPO
The Life Insurance Corporation of India (LIC) logo is seen on a smartphone in this image taken on February 20, 2022. Photo: Dado Ruvic, Reuters.

 

The long-awaited debut of the state-owned insurance giant Life Insurance Corporation of India (LIC) turned out to be a tepid affair with its shares listed at a steep discount at the opening.

But, despite the lukewarm reception, analysts predict that LIC is strong enough to bounce back. They say it might take months though as, in the short run, its stock will continue to suffer because of the current volatility of global equity markets.

LIC started trading on Tuesday morning at Rs867.2 per share on BSE, a discount of 8.62% over its issue price of Rs 949, while on the NSE it debuted at a discount of 8.11%. Trading however, ended a tad up, at Rs 873.00, down 8.01%.

“Volatility in embedded value (EV) worries us, as a large part is constituted by equity mark-to-market gains,” Macquarie admitted.

 

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Retail investors and eligible employees paid 904 rupees for their shares, a discount of Rs 45 per share, while policyholders paid Rs 889, a discount of Rs 60 per share. Foreign and institutional investors paid Rs 949 for each share, the discounted listing eroding $5.46 billion of its investors’ wealth on debut

“The discounted listing was due to a few reasons, but at 1.1 times its embedded value, I wouldn’t say LIC’s IPO was expensively priced,” said Jyoti Roy, Equity Strategist at Mumbai-based Angel Broking. “The current weak sentiments in the stock market was the main reason for the disappointing listing.”

Insurance companies in India are mandated to declare their embedded value (EV) – one of parameters analysts use to judge an insurance company – of their shares periodically, and the last declared by LIC on September 2021 was Rs853.

According to Roy, the other concern investors have is the fact the government offloaded just 3.5% of its strake in the IPO, while the ultimate objective was to sell 5%.

“Going forward there could be further dilution by the government and that is expected to cap LIC’s upside,” said Roy.

 

LIC Portfolio Valued at $167bn

Still, analysts consider the state-jewel as a long-term play. “The biggest factor in favour of LIC is the under-penetrated insurance market,” said Ajit Mishra, VP of Research at Mumbai-based Religare Broking.

The under-penetration of life insurance in India coupled with favourable demographic tailwinds will drive multi-decade growth in the life insurance industry registering to 14-16% over the next decade, predicts Mishra.

Besides, according to Mumbai-based brokerage firm Motilal Oswal, LIC is India’s largest asset manager, with assets under management which are more than three times that of all private life insurers in India.

LIC is also the largest domestic institutional investor with its portfolio value of $167 billion.

“In the long run, LIC is expected to be a wealth generator and I see its shares recovering to Rs1000 in the next two to three months,” said Chandan Taparia, vice-president of research at Motilal Oswal.

 

  • By Indrajit Basu

 

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Indrajit Basu

Indrajit Basu is an India-based correspondent for Asia Financial and wears two hats: journalist and researcher (equity). Before joining AF he reported on business, finance, technology, wealth management, and current affairs for China Daily, SCMP, UPI, India Today Group, Indian Express Group, and many more. He is also an award-winning researcher. If he didn't have to pay bills, he would be a wanderer.

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