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Despite having a strong business portfolio, a promising growth outlook, and even holding onto the leadership position in the life insurance sector, these achievements could not offset the bearish brutality of the market for the Life Insurance Corporation of India (LIC). A month ago, when LIC shares got listed - things were only starting to get bleaker for the equities market. A month later, LIC has now dropped more than 31% with market valuation wiped out by over 1.86 lakh crore against the mega IPO issue price.

On Friday, LIC shares hit a fresh lifetime low of 651.30 apiece on BSE. The shares continued to extend their losses tracking the selling pressure in broader markets amidst mounting inflation, higher crude oil prices, weak rupee, uncalming foreign funds outflow, and interest rate hike scenario.

With that, LIC shares today closed at 654.70 apiece down by 14.50 or 2.17% on BSE. At the current price level, LIC's market cap stands at 4,14,097.60 crore.

LIC currently is the seventh most valued company on BSE in terms of market capitalisation.

A month ago, on May 17, LIC made its market debut at a discount of over 8% and was listed at 872 apiece on BSE. Following that week, LIC shares even touched an all-time high of 920 apiece. It held the position of the fifth most valued company in terms of market capitalisation on BSE.

But then LIC shares entered a hot zone and took heavy beatings due to the bearish trend in the market.

LIC IPO issue price was at 949 with a market valuation of 6,00,242 crore.

A month later, compared to its IPO issue price, LIC shares have plunged over 31% and the market cap has been erased to the tune of 1,86,142.4 crore as of June 17.

LIC launched its 21,000 crore IPO from May 4 to May 9. The issue is the biggest ever in the history of the Indian IPO market. The IPO was successfully oversubscribed by 2.95 times.

Many would like to believe LIC shares listed at the wrong timing with the equities market moving in an intense volatility tone due to inflationary pressures, geopolitical tensions, a spike in crude oil prices and other commodities, and signaling of aggressive monetary policy tightening. This is the major reason why LIC shares couldn't fetch their potential levels. The current risk-off sentiment in the market has led to a drastic correction in the banking and financial sectors. But can we call LIC a wealth destroyer?

Why LIC shares are declining?

Manish Jeloka, Co-head of Products & Solutions, Sanctum Wealth said, "LIC's stock price decline can be attributed to current risk-off sentiment in the market and the company's business inferiority when compared to its private peers."

Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services pointed out that LIC is not alone even great wealth-creating companies have witnessed a long period of poor stock price performance.

Vijayakumar said, "It is not yet a month since LIC was listed, and therefore, it is too early to conclude that LIC has become a wealth destroyer. Even great wealth-creating companies like RIL, HDFC, Kotak Bank, Infosys, and HUL have gone through long periods of poor stock price performance."

The Geojit chief investment strategist added, "Presently, the financial sector is underperforming, mainly due to FPI selling. This scenario will change lifting the sentiments in the financial sector. LIC also is likely to perform better when the market sentiments improve."

"Poor Q4 FY 22 results also impacted LIC's performance," Vijaykumar added.

Should investors worry?

Vijaykumar said, "If the coming results indicate improvement, there can be renewed buying in the stock, lifting its share price." He further added, "LIC's issue price at 1.1 times embedded value was fair. From that perspective, the present market price is attractive. Long-term investors who got allotment in the IPO may buy some more now at the current rate to bring down their average cost."

Meanwhile, Jeloka said, "the long-term business improvement plan is in place and that should lead to better performance in the long run. Valuations have become even more attractive after the fall providing a better margin of safety."

 

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