Govt of India diluted its ownership in India’s state-owned Life Insurance Corporation through public issue. The issue aimed to raise around 21000 Crore INR, valuing the insurer at ₹6,00,000 crore.
The govt gave discounts to policyholders and retail investors as follows for investing in the IPO:
- IPO price: 949 Per Share
- Policy Holder: 909 Per Share (45 rs Share)
- Retail Investors: 889 Per Share (60 rs Discount)
The issue was on a lot size basis; many LIC shares were 15 shares each. As a result, the investors who bought multiple lots suffered instant losses upon listing on the share market.
According to Chittorgarh, Qualified Institutions and Non-Institutional Buyers didn’t subscribe to the LIC IPO until the very last date.
While Policyholders were ahead with employees in subscribing to LIC IPO, Retail Investors and QIB were shying away from investing their money till the last day.
These trends raised serious doubts among the financial planners about the future of LIC IPO. The reason behind the sudden investment infusion by QIB and NII was still unjustified.
Many factors are influencing the sad state of LIC IPO; a few of them are as follows:
- Market Correction: The biggest Private insurer in India, HDFC limited, is 15% down from its peak price last month. The cascading effect of future growth limits the market to subscribe to another insurer while the biggest one is already in losses.
- Market Sentiment: Due to inflation, the market sentiment is currently in possibly the worst state in the last two years.
- International Investors: FIIs are exiting international markets after United States Federal Govt increased the returns on the dollar.
- Devaluation of Rupee: USD to INR is touching all times high at 77.50 rs per dollar. This is due to an increase in repo rate by RBI, reflecting the market sentiments. No FII wants to invest in a devaluating market because its investment will only lose value with time.
- Lucrative investment options: Indian investors have other lucrative investment options than the company, with a valuation of 600,000 Crore rupees giving a mere net profit of Rs 234.91 crore for the December 2021 quarter
- Ukraine Conflict: Every country in the world faces wrath due to the Ukraine conflict. Developing nations are worst hit due to continuous disinvestment by USA-based investors after US sanctions on Russia.
- Price correction: HDFC Ltd, the closest competitor to LIC, reported a net profit of Rs 3,700 crore for the March Quarter, almost 15 times LIC’s December quarter profit.If we compare only Market Cap to Net Profit, LIC currently has a market capitalization of 1.6 Lakh Crore more than HDFC Ltd with only 1/15th of Profit. LIC’s market cap currently stands at around 5.5 Lakh Crore, while HDFC Ltd stands at 3.9 Lakh crore.
A price correction in other similar companies like Bajaj Finserv and HDFC Ltd may bring good news for LIC investors.
LIC Share Price Prediction 18th May 2022
The prices of LIC Shares upon Public Listing are expected to fall in the short run. Retail investors, Employees, and Policy Holders have the least tolerance to market changes, which amounts to critical investors in LIC.
LIC Share Price Prediction 18th May 2022: Here is investment advice according to different investment experts and analysts
“…we advise allotted investors not to panic and hold it for the medium- to long-term”, said Prashanth Tapse, research analyst and vice president of Research at Mehta Equities.
“The valuation at Price to Embedded Value of 1.1 had discounted the above concerns, but nevertheless, investors must be aware that the business of insurance is long-term in nature and therefore we recommend investors to stay with the company for the long term even if the company lists at a discount,” said Aayush Agrawal, senior analyst at Swastika Investmart Ltd.
“The subdued listing of LIC is in-line with expectations regarding the drop in market dynamics from the opening of the IPO to the listing date,” said Vinod Nair, head of research at Geojit Financial Services.
“Investors could hold the shares post listing for long-term gains rather than have a knee-jerk reaction due to current market sentiments. If they can, they could hold for the long term as valuations are comparatively attractive for the company,” said Narendra Solanki, head of fundamental research- investment services, Anand Rathi.
“LIC Policyholders can sell 25 percent of allotment to book listing gains and keep 75 percent for long term as believed at LIC IPO is a significant discount to other listed private life insurance companies like HDFC Life, ICICI Prudential Life Insurance and SBI Life,” said Yash Gupta, Equity Research Analyst, Angel One Ltd.
“Sentiment is affected due to carnage in the broader market. Though there is some recovery today and yesterday, many stocks have corrected sharply from the recent high,” said Hemang Jani, senior group vice president at Motilal Oswal Financial Services.
Bytes roundup from: MoneyControl, TimesOfIndia, News18, Goodreturns