Life Insurance Corporation of India‘s shares slumped for a tenth consecutive day on Friday and have lost more than a quarter of their value since the company was listed a little more than three weeks ago.
Analysts say there may be worse to come. Concerns about a disappointing earnings report last month and the imminent end of a 30-day lockup period for anchor investors in the IPO have spooked punters, prompting them to bail out despite steep losses.
“The lower-than-expected earnings disappointed many investors,” said Sonam Srivastava, the founder of Mumbai-based Wright Research, a boutique equity research firm. “Everybody is now sceptical about the ability of LIC to transform itself in the modern world as the management had projected.”
Just 13 days after it was listed, LIC reported a profit of 23.72 billion rupees ($306 million) for the March quarter, down from 28.93 billion rupees a year earlier.
That’s prompted investors to focus more on downside risks for the monolithic company, which has more than 100,000 employees and an agent network of 1.3 million.
LIC began operations 65 years ago and held a monopoly until 2001, when India allowed private companies to compete in the sector.
Still, its vast size masks the challenge of how it is able to compete against more agile private-sector players given its bloated commission and cost structure, said a note by Mumbai-based research firm Emkay.
LIC has been steadily losing market share to more nimble competitors for the past decade, while listed rivals HDFC Life, IPRU Life, and Max Life are seizing share, said Emkay insurance analyst Avinash Singh. It holds an overall market share of 60% but is winning only about 40% of newly-generated annual business in the sector, says Singh.
“These challenges are weakening LIC’s dominance, which is the principal concern of its investors,” says Singh, who predicts that the company’s shares will be under pressure until the company’s second-quarter results are reported in October.
- Indrajit Basu