OPEN APP
Home / Markets / Stock Markets /  LIC shares a decent investment opportunity despite tepid debut, here's why

LIC shares a decent investment opportunity despite tepid debut, here's why

On May 17, LIC was listed at a discount of nearly 9% to  ₹867 apiece on BSE compared to the IPO upper price band of  ₹949 apiece. (Photo: Reuters)Premium
On May 17, LIC was listed at a discount of nearly 9% to 867 apiece on BSE compared to the IPO upper price band of 949 apiece. (Photo: Reuters)

  • At the current closing price, LIC holds a market valuation of 5,54,227.92 crore. This has made the insurer the fifth largest company on BSE in terms of market cap - surpassing the market cap of 5,38,209.12 crore of Hindustan Unilever (HUL).

Listen to this article

 

The largest insurer Life Insurance Corporation of India (LIC) is struggling to record a valuable upside on stock exchanges after listing on a discounted note. On Wednesday, the shares traded on a flatter tone as investors expressed lackluster sentiments. Yet, the government-owned insurer has made its way to the list of big boys by holding the tag of the fifth most valued company in terms of market share and also taking the lead in the insurance segment.

Despite having a strong market presence, LIC is listed at a discount on exchanges. The real problem for LIC currently was the broader bearish market dynamic not just domestically but also globally as inflationary pressures and monetary policy tightening has unnerved the buying mood. Insurance stocks as well have followed the volatile bandwagon.

On Tuesday, LIC was listed at a discount of nearly 9% to 867 apiece on BSE compared to the IPO upper price band of 949 apiece. On the debut day, LIC touched a 52-week high and low of 920 apiece and 860.10 apiece respectively. LIC's upper circuit is set at 1,051.50 (20%) and the lower circuit at 701 (20%).

LIC shares are listed on BSE in the ''A'' Group Securities.

Shivam Bajaj, Founder & CEO at Avener Capital said, "Despite the reduction in the pre-IPO valuation of LIC, the scrip has still listed at a discount on the bourses which is in tandem with the diminution in insurance companies’ valuation and softness in the markets due to macro-economic constraints."

Meanwhile, Vinod Nair, Head of Research at Geojit Financial Services said, "The listing price has fallen in tandem with the fall of insurance sector valuations, maintaining the discount of about 70% to the industry’s average. Positively, the stock was brought at the dip."

On Wednesday, the shares witnessed slower traction. It ended at 876.25 apiece almost flat compared to the previous day's closing of 876.25 apiece on BSE.

At the current closing price, LIC holds a market valuation of 5,54,227.92 crore. This has made the insurer the fifth largest company on BSE in terms of market cap - surpassing the market cap of 5,38,209.12 crore of Hindustan Unilever (HUL).

Currently, RIL is the most valued company with a market share of 17,17,503.33 crore followed by TCS at second place with a valuation of 12,62,006.82 crore, HDFC Bank at the third rank with a valuation of 7,29,631.10 crore and Infosys holding the fourth spot with a valuation of 6,35,104.25 crore.

Despite the tepid listing, LIC has a decent investment opportunity going forward.

Bajaj added, "However, given the attractive fundamentals, stability in operating metrics, and expected recovery in the markets, we can potentially see some buying interest from investors."

According to Nair, "We believe that LIC is a decent investment opportunity in the short to medium-term considering its strong market presence, improvement in future profitability due to the changes in surplus distribution norms, and strong sector growth outlook. LIC can perform well when we have a bounce in the market and positive performance in the insurance sector."

LIC had planned to raise around 21,000 crore from the IPO - becoming the largest ever public offer in the market. The IPO was available from May 4 to May 9. The IPO was oversubscribed by 2.95 times driven by retail, employees and policyholders.

Earlier this month, Ajit Kumar Kabi analyst at LKP Research in the IPO note had explained that India’s life insurance industry is expected to grow rapidly, owing to a relatively underpenetrated market and expanding awareness, which presents a multi-year growth opportunity. LIC has been providing life insurance in India for over 65 years and is the country’s biggest life insurer, with a significant brand value advantage. There are concerns about losing market share to private players and having lower profitability and revenue growth when compared to private players. However, we believe that LIC’s distribution advantage, increasing sales mix of direct and corporate channels, and a gradual shift to high margin Non- participating products could be possible drivers for LIC’s future growth, negating lower than industry growth rates.

Also, Yesha Shah, Head of Equity Research, Samco Securities had earlier said that the demographical tailwinds, a moderate penetration of life insurance in India, and a massive protection gap, will fuel the Indian life insurance industry's multi-decadal growth. LIC, being the market leader, both in terms of GWP and NBP, is poised to benefit from this growth opportunity. While the fact that LIC has been losing market share as well as it's lower than industry VNB margins do instill apprehension, LIC has indicated its plans to improve the two. The insurance behemoth aims to protect its market share through increased focus on bancassurance and enhancing direct sales of its products on its website. Further, by improving its share of non-participating products and protection plans, it aspires to improve its margins. The long-term direction of LIC’s business and financial performance does hinge on the good execution of these plans.

 

Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.
Close
Recommended For You
×
Edit Profile
Get alerts on WhatsApp
Set Preferences My ReadsFeedbackRedeem a Gift CardLogout