One year of LIC listing: Stock erodes Rs 2.4 lakh crore in market cap! 5 reasons why

Life Insurance Corporation of India (LIC) completes an year of its journey on Dalal Street on May 17, 2023. The counter was listed at bourse on the same day, a year ago, when the government of India offloaded 22,13,74,920 equity shares, or 3.5 per cent stake, at an issue price of Rs 949 apiece.

The scrip was listed at a discount of 9 per cent at Rs 867.20 on BSE, while it debuted at a discount of 8 per cent at Rs 872 on NSE. However, the stock has seen a free fall, dropping about 40 per cent from its issue price of Rs 949 per share to Rs 568 a piece. The stock has failed to touch its issue price, even once.

Retail investors and company employees, who received a discount of Rs 45 per share, are sitting at a notional discount of 37 per cent from their adjusted issue price of Rs 904. Overall, LIC has wiped out about Rs 2.4 lakh crore of wealth from investors' kitty, commanding a market capitalisation of Rs 3.6 lakh crore on Tuesday. It boasted a mcap of Rs 6 lakh crore at the time of its IPO.

At the time of its IPO, brokerage firms were gung-ho over the issue, suggesting to ‘Buy’ it from a long term perspective. Select market analysts still remains positive on the stock and if one goes by  Independent market expert Ambareesh Baliga, LIC shares may touch issue price by Diwali 2023.

Also Watch: LIC completes 1 year since its IPO, share price down 34% from listing; should investors buy, sell, hold? Here’s what analysts say

LIC is a market leader in an under-penetrated Indian life insurance market, said Cyril Charly, Research Analyst at Geojit Financial Services. "We expect LIC to have minimal impact on the tax implications due to its versatile client mix. The stock is currently trading at an appealing valuation, exhibiting a substantial discount compared to its industry peers," he said.

The stock has been in free fall since its listing due to multiple headwinds like weak market conditions and changes in tax policy. The management has emphasized increasing the share of non-participating policies in the portfolio mix, driving profitability, Charly added.

According to market experts, there are a number of reasons that weighed on the LIC during its IPO, listing and prospects since its debut. Here's what analysts have to about the insurance major:

1. Peer performance
Life insurance as a sector has had muted year. Not many of the insurance companies delivered healthy performance in the last one year. Infact, the returns have been mostly on the lower side and LIC is no exception.

In comparison to a 40 per cent fall in LIC's stock price, HDFC Life Insurance has remained flat in the last one year, while ICICI Prudential Life Insurance Company has declined 13 per cent and Max Financial Services is down 8 per cent. However, SBI Life Insurance has managed to rise 10 per cent during the last 12 months.

2. Low subscription for a major issue
LIC was India's biggest initial public offering thus far. The government raised about Rs 21,000 crore from its primary stake sale, which was complete and offer-for-sale. However, the issue received muted responses from the investors, as it received a less-than-expected 3 times subscription during the six-day bidding process, attracting bids for Rs 60,000 crore.

"Investors lose interest in any issue that opens below par and stays below par for a while. Selling pressure is higher than the buying interest on every round of correction in such counters" , said Ambareesh Baliga, an independent market analyst.

3. No big surprises in earnings
LIC's earnings remained on the muted side since its listing. The insurance behemoth failed to post any positive surprises, which can attract investors on Dalal Street.

LIC needs to give a healthy and consistent growth in terms of revenue and operating profits, along with dividends to woo investors, said Kranthi Bathini, Equity strategist at WealthMills Securities.

"Also, LIC is allegedly used as a 'bailout' or 'rescue machine' by the government, which caused another apprehension among investors," he said.

4. Adani Saga
After the US-based short seller Hindenburg alleged Gautam Adani led Adani Group for 'brazen stock manipulation' and 'accounting fraud,' LIC was under strict media trials as the insurance major owned stakes in a few Adani Group. which were valued at Rs 56,000 crore on January 27. LIC, however, was quick to clarify its position.

“The Adani-Hindenburg issue created more pressure on the stock, which led to a further correction in the LIC's stock price. However, now, most of the negative of the Adani saga is priced in the stock,”: said Baliga.

5. Absence of major dividends
LIC was considered to be a major dividend play for investors, akin to other state-run companies such as Coal India and others. However, LIC has announced only a single dividend of Rs 1.50 per equity shares in August 2022, making the dividend payout majorly insignificant for investors.

“Both retailers and institutional investors expected 'big ticket' dividends from the insurance behemoth, but post listing the company has not announced any significant dividends for the investors, which adds to their disappointment,” Bathini said.

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