Buy, sell or hold: What should LIC investors do post tepid listing?

Shares of Life Insurance Corporation of India (LIC) made a tepid debut on bourses on Tuesday, with its shares listed 8.11 per cent discount on the National Stock Exchange (NSE) at Rs 872 against the issue price of Rs 949. On the other hand, the scrip got listed at Rs 867.20 on the BSE. 

Market watchers believe that the ongoing volatility weighed down on the insurance titan’s listing. However, the prospects for the insurance industry in India are good due to the under penetration of insurance and a long runway of growth. 

Santosh Meena, head of research, Swastika Investmart said, “LIC being the largest player will be the beneficiary in the long term. Insurance is a business of scale, and there is no company to match the scale of LIC, so we suggest investors not be bothered about the negative listing and stay with the company for the long term.” 

He further added that those who applied for listing gains can maintain a stop loss of Rs 800. “New investors can take advantage of the dips to accumulate this share for the long term. Another point to note has that, LIC didn’t pay any dividends in the last financial year, so there are high chances that the company might declare a good dividend this year, thus making it a good dividend play,” Meena added. 

Meanwhile, global brokerage firm Macquarie initiated the coverage on the insurance behemoth with a neutral rating and target price of Rs 1,000. 

It believes that LIC’s September 2021 enterprise value (EV) consists of almost 70 per cent of equity MTM gains and hence the sensitivity of EV to equity-market corrections is far higher than private-sector peers. 

“We believe, LIC’s ROEV over the longer term and EV growth are likely to be around 10 per cent and hence at best the fair value needs to be closer to EV. Unlike private-sector peers in which 9-10 per cent of accretion to EV comes from the value of new business (VNB), for LIC the accretion is just a mere 1 per cent (due to the large EV base coming from existing policies in force) and hence the contribution of new business to overall value is much lower,” Macquarie said.

Yash Gupta, equity research analyst, Angel One said, "At current prices, LIC is trading at a P/EV of 1.08 times which is at a significant discount to other listed private life insurance companies such as HDFC Life, ICICI Prudential Life, and SBI Life. As expected, given the adverse market conditions listing has been muted for LIC."

"However, cheap valuations as compared to other listed players offer comfort, and investors with a longer time horizon can hold on to their positions while retail traders with a short-term view can exit their positions in case there is any upside movement over the next few days," Gupta added.

Also read: LIC stock makes tepid market debut, lists at 9% discount to issue price

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