BackWhy LIC IPO proved to be a wealth destructor for investors
Ever since its listing on the exchanges, LIC's share prices have been on a decline and its onward journey has been rough.
PremiumPrior to its much-anticipated mega-listing in the Indian stock exchanges on May 17, 2022, the Life Insurance Corporation of India (LIC) share price has disappointed investors. The expectations with the LIC IPO, which was dubbed India’s ‘Aramco moment’, were quite high. On the LIC share listing date, LIC IPO opened trading at ₹872 on NSE and ₹867.20 on BSE. The stock touched the intra day low of ₹860.10 apiece on BSE and ₹860.00 per share on NSE. LIC shares touched the high of ₹920.00 on BSE and ₹918.95 on NSE. That's the highest till date and since then the stock been trading lower from its issue price of ₹949 per equity share.
Ever since its listing on the exchanges, the insurance company's share prices have been on a decline and its onward journey has been rough.
Ravi Singhal, CEO at GCL Securities said as we all know, the LIC IPO has a higher valuation than its listed peers. Furthermore, market share is declining. We are still not moving to an online platform. New business development is also slow.
He added, as a result, we believe it will take some time to reach its IPO price.
Counting reasons that took a toll on the investors wealth, Ravi Singh, vice president and head of research at Share India explained, “LIC is the market leader in the life insurance industry both by premium collected as well as number of policies sold. However, The private players captured the market very fast by directing the bulk of their efforts through banks they were allied with – for instance, HDFC Life Insurance pushed its products through HDFC Bank, SBI Life through SBI etc,. But LIC, even with potential access to a huge universe of PSU banks, did nothing. Today, 50 percent of insurance industry contribution comes from banks, LIC still depends on the Agent mechanism with very poor conversion and earnings potential."
He further added that at the time LIC got listed, the world started facing inflation and food shock due to ongoing Ukraine tensions, huge foreign institutional investment outflows from India and a sliding rupee, resulting in not so favourable environment for the IPOs.
Thirdly, the past performance of the PSUs listing like Coal India Ltd, GIC and New India Assurance were listed in 2017 and have been the worst performers. All these factors took a toll on the investors wealth.
There was an unprecedented slew of IPOs in India in 2021 with over 63 IPOs that created a lot of buzz. In fact many first-time investors jumped in to buy a piece of these well known brands. The IPO excitement however is waning now.
"The performance of LIC IPO is not an aberration in that sense and needs to be seen in the context of macro economic trends i.e. steep rise in interest rates, inflation, reduction in liquidity due to central bank actions and bearish investor sentiments," said Nikhil Aggarwal, Founder & CEO at Grip
In my view this event is best taken as a reminder, especially for smaller retail investors to build balanced portfolios for the long-term, he added.
The LIC share sale has pushed government holding in listed companies to a high of 7.15 per cent in the June quarter from 5.48 per cent in the March quarter. Through the IPO route, the Centre had offloaded 3.5 per cent of its stake in the insurance major. The IPO valued the company at worth ₹6 lakh crore.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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