1 Year After The Great LIC IPO Listing: The Expected Versus The Actual Outcomes!

Remember the LIC IPO mania from a year ago? You will hear this phrase everywhere, whether you are a retail investor or an institutional one. One year has passed since the Life Insurance Corporation of India shares were listed on local stock markets following the conclusion of the nation’s most extensive IPO, valued at ₹21,000 crores.

The largest IPO in India was listed but cursed since the stock began at an 8% discount and has never again traded at that level. Life Insurance shares have decreased by around 35% from their IPO price and by almost 40% from their listing price. Recently, the BSE saw the trade of LIC shares at about ₹567 per share. The slump in shares over 2022 contrasts with 13.3% gains in the benchmark Sensex and an 11.8% increase in the Nifty50.

At the time of the IPO,  Life Insurance Corporation of India’s market capitalisation was roughly 5.48 lakh crore, making it India’s sixth most valuable corporation. However, the company’s worth has declined by about 2 lakh crore, ranking 13th at 3.58 lakh crore.

Brokerage companies were enthusiastic about the IPO, advising investors to ‘Buy’ it for the long term. Select market experts remain bullish on the company, and according to Independent market pundit Ambareesh Baliga, the shares might reach the issue price by Diwali 2023. However, the show seems to be not as successful as planned.

According to experts, the shares of LIC, the country’s largest insurer, have been under pressure due to several factors.

Peer evaluation.

The life insurance industry has had a quiet year. In 2022, few insurance businesses generated positive results. In truth, returns have been generally modest, and the Life Insurance Corporation of India is no exception. Compared to a 40% drop in the stock price of LIC, HDFC Life Insurance has been steady in 2022, while ICICI Prudential Life Insurance Company has dropped 13%, and Max Financial Services has been down 8%. SBI Life Insurance, on the other hand, has increased by 10% in the recent year.

Low subscription for a prominent publication.

Life Insurance Corporation of India was India’s most extensive to date. The government raised around Rs 21,000 crore from its complete and offer-for-sale main share auction. However, investors’ reactions were subdued, as the issue achieved a lower-than-expected three times subscription over the six-day bidding process, garnering offers of around Rs 60,000 crore. Investors lose interest in any case that begins below par and remains below par for an extended period. On every correction wave in such equities, selling pressure exceeds purchasing demand.

There were no significant earnings surprises.

Since its initial public offering, the earnings have been relatively flat. The insurance titan failed to deliver any positive surprises that may entice Dalal Street investors. To attract investors,  Life Insurance Corporation of India must provide healthy and steady growth in revenue, operational profitability, and dividends. Furthermore, he claims that LIC is purportedly employed as a ‘bailout‘ or rescue machine’ by the government, which has prompted additional concern among investors.

The Adani Saga.

After US-based short seller Hindenburg accused Gautam Adani and Adani Group of ‘brazen stock manipulation’ and ‘accounting fraud,’ LIC was under intense media scrutiny since the insurance giant possessed holdings in a few Adani Group, which were valued at Rs 56,000 crore on January 27. LIC, on the other hand, was keen to explain its position. The Adani-Hindenburg problem put more pressure on the stock, causing it to fall further in price. However, most of the bad aspects of the Adani affair are now priced into the stock.

The absence of significant dividends.

LIC, like other state-run enterprises such as Coal India, was thought to be a key dividend option for investors. However, LIC only declared a payment of Rs 1.50 per equity share in August 2022, rendering the dividend distribution inconsequential for investors. Both retailers and institutional investors expected ‘big ticket’ payouts from the insurance behemoth. Still, the business has not issued any significant dividends for investors since its debut, adding to their disappointment.

Expert Opinions on LIC IPO.

LIC has demonstrated solid commercial success, and the stock’s inherent value appears to be reasonable. However, the shares require a significant trigger in the form of robust earnings growth and considerable improvement in profitability, according to Avinash Gorakshakar, Head-Research at Profitmart Securities. Gorakshakar expects LIC shares to trade sideways until profit growth becomes more visible. Long-term investors may stay on to LIC stock despite any near-term volatility, he suggested.

LIC’s total net profit increased to 8,334 crores in the third quarter ended FY23 from 235 crores in the same period a year before, owing to an increase in premium income.

Meanwhile, several experts have expressed worry about the Union Budget’s intention to withdraw tax-free status from some life insurance contracts with premiums above 5 lacks, describing it as a short-term negative for the sector. Analysts predict that the insurance industry will continue to develop because long-term business factors outweigh the short-term tax burden.

Conclusion.

The life insurance industry should be seen with a long-term perspective. After the COVID-19 pandemic, the whole attitude of the industry has transformed from ‘tax-saving’ to ‘getting secured’, and there is a significant market for ‘ensuring the uninsured’. And LIC is a prominent participant in this industry, according to Gauang Shah, Senior Vice President of Geojit Financial Services.

They feel that over the next two years, there would be enormous prospects for not only LIC but also for other insurance firms such as HDFC Life, SBI Life, and ICICI Prudential. Shah said that LIC IPO buyers might acquire more LIC shares at lesser prices, average their prices, and hold for a long time.

Proofread & Published By Naveenika Chauhan